1

Generic Offshore Transmission Owner (OFTO) Licence

Note: This version of the licence shows the embedded changes made to the

licence for both version 1.3 and 1.4

Version History

Version Number Date Published Comments

1.4 Oct 2012

Updated information on structure of

licence (this section)

Part 1: Clarified paragraph 5.

Updated Standard conditions (Part 2)

Updated title of Part 3 for consistency

E12-A1: Inserted definition of „external

transmission business‟. This was used

in earlier versions of the licence but

was omitted from V1.2 by mistake.

E12-C1, para 1(a) and (c): changed „or‟

to „and‟ for clarity.

E12-C2, para 2, 4(a) and (b): updated

for clarity.

E12-C3, 2(a) changed reference to

„paragraph 3‟ for completeness.

E12-C3, 3(a)(i): added „who‟ for

clarity.

E12-C4, paras 1,2,3 and 7(g): minor

changes for clarity.

E12-D1, para 3. Minor changes for

clarity. Para 9: minor change to clarify

the requirement of an audit report.

E12-J1: Clarified Definition of

commencement relevant year and

transmission service reduction.

E12-J3: Made titles consistent.

E12-J4, paras 4,6,7,8 and 13: Minor

text changes for clarity.

E12-J4, para 5: amended wording to

clarify when the OFTO must report on

low availability.

E12-J4, para 15: Clarified wording

around financial security requirements.

E12-J4, para 17. Clarified that ACAt

equals zero unless directed otherwise.

E12-J5, paras 1-3: Changes for

clarification

E12-J6, para 3: moved word „keep‟ for

clarity

E12-J8, para 7: corrected typo

E12-J9, paras 7 and 8: minor changes

for clarification

E12-J10, paras 3 and 5: minor

corrections.

E13: minor corrections.

1.3 July 2012 (not

published)

E12-A2 and E12-A3: Changed the

words „shall direct‟ to „may direct‟ in

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paragraph 6 to reflect fact that MRA

and PTRA directions are not always

needed. Also amended paragraph

references.

E12-J1: Corrected licence condition

titles.

E12-J2: Removed unnecessary title

E12-J3: Clarified that „written‟ notice

required for a number of pass-

throughs.

E12- J1 and E12-J3: Corrected typos

E12-J4 Part C: Incremental Capacity

Incentive Adjustment. Units in CCR

term modified to kVA and power factor

conversion added.

E12-J4 Paragraph 7: Corrected typo.

E12-A4 changed to E12-J4.

E12-J4 Paragraph 23: Changed

reference to „11A and 11B of the Act‟

to „11A to 11F of the Act‟ for clarity.

1.2 30 November

2011

Revised:

PART II STANDARD CONDITIONS:

Updated and include new conditions

set out in the Electricity and Gas

(Internal Markets) Regulations 2011.

E12-A2: Amended for consistency with

E12-A3. Updated to include reference

to PTRA and “market rates” definition

amended.

E12-A3: Amended for consistency with

E12-A2. Updated to allow for PTRA to

be directed on the date of financial

close and for an MRA adjustment to be

made after the PTRA direction.

E12-C1: Simplified drafting.

E12-C2: Updated so that Authority

consent is only required in limited

circumstances (e.g. where an OFTO

wishes to share resources with the

NETSO, a generator or a supplier).

E12-C4: Clarified that Authority

agreement is not required if the

compliance officer acts as a

compliance officer for other OFTOs (so

only required where that compliance

officer would be engaged in the

management and operation of an

associated business).

E12-D1: Clarified the definition of

regulatory instructions and guidance.

Paragraph 8 added to potentially

reduce the reporting burden in the first

year. Amending PART D so that the

audit report is only required if directed

by the Authority.

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E12-J1: Included definition of „target

availability‟

E12-J2: Clarified that in the first year

Kt should take the value of zero.

E12-J3: Amended for consistency

between similar terms and to clarify

timescales.

E12-J4: Algebra amended to account

for inconsistencies with the previous

algebra when calculating the

availability incentive for the first and

last years.

Schedule 2: Updated to align with the

Electricity and Gas (Internal Markets)

Regulations 2011.

1.1 14 July 2011 Revised:

Various minor drafting changes

Inserted text where the licence will be

signed and sealed by the Authority

Provided additional flexibility in respect

of the requirements of E12-C4.

Updated the PR term in E12-J2 so that

it also proportions the MRA.

Consequentially, we have added a new

ATR term E12-J2 (equal to TRS+MRA),

to prevent the definition of PRt

becoming overly complicated.

Clarified the CELt in E12-J3.

Simplified the RPI indexation

adjustment term so that inflation is

indexed to a consistent base month,

instead of the difference in average RPI

numbers of previous two years.

E12 - J4 – updated definition of ICUt

term.

Updated amended standard condition

E13 to correct the titles and sequence

of E12-A2 and E12-A3.

Updated schedule 2 in respect of the

third package revocation provisions.

Changes to J4 to reflect recent

consultation on availability incentive

Change to RIT term to achieve more

cost effective RPI swap rates

0.7 4 October 2010 Revised:

Various minor drafting changes

Alteration to D1 to allow

implementation of the RIGs

Various minor alterations to formulas

in E12-J4

Alterations to formulas 10 and 21 in

E12-J4 to better account the proportion

of the year.

Paragraph cross-references corrected

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in E12-J3

RIT term altered to reflect 2010/11

base year used in TRS.

0.6 3 September

2010

Revised:

Structural changes – reordered

conditions A2 and A3

A2 – separated provisions in original

PTRA condition (A3) to move debt

market rates into new condition A2.

J4 – refined availability incentive.

Schedule 2 – removed paragraph 1(g)

and added paragraph 4.

Minor drafting amendments – all

highlighted

0.5 1 March 2010 Revised:

Part 1 - Terms of Licence

Part 2 – Standard Conditions

Part 3 – Amended Standard Conditions

A1 – updated definitions

A2 – updated to reflect requirement for

OFTO to model any ex post assessment

of project value.

J2 – updated drafting to clarify K factor

J3 – new pass through items added

J4 – refinements to the availability

model have been included.

J4 – finalisation of the ICRD term

J8 – condition was missing from

version 0.2 to 0.4, so condition re-

inserted

Schedule 2 – updated to clarify our

ability to revoke the licence at the end

of the revenue stream period.

Schedule 2 – updated to reflect our

ability to revoke licence for

underperformance against the

availability incentive

Minor amendments – all highlighted.

0.4 14 December

2009

Revised:

A2 – the process for applying the Post

Tender Revenue Adjustment

B1 – inclusion of circuit map in Annex B

J2 – altered to reflect changes in A2

(the PTRA term), PTRA neutral rate and

the penalty incentive rate.

J4 – updated to reflect incentive model

J5 – reporting requirement was altered

to work in conjunction with Schedule 2

- revocation

Schedule 2 – revocation – altered to

allow for reporting in J5 to act as a

trigger for revocation.

0.3 30 September

2009

Revised version incorporating changes

for:

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Formula errors picked up during PQ

stage of tender process;

Renumbering of conditions to ensure

that the STC payment provisions work

correctly;

Update of excluded services condition

to be consistent with Scottish TO

model;

Highlighting of project specific

elements of the legal text.

0.2 23 July 2009 Revised version incorporating responses

to the March Consultation and the Brattle

Group‟s review of the licence drafting.

0.1 23 March 2009 Initial version published alongside final

DECC/OFGEM consultation.

Structure

The draft generic OFTO licence comprises the following parts:

the Terms of the licence;

the Standard Conditions;

the Amended Standard Conditions

the Special Conditions

the Schedules

The Terms specify the legislation under which the Authority grants the licence.

The standard conditions apply to all licensees and are modified from time to time.

were modified by the Secretary of State in June 2009. Modifications are being proposed

to the standard conditions for each licence which meet the circumstances of each

licensee’s particular case.

The OFTO specific provisions (previously consulted on as special conditions) are being

proposed to be added to Section E of the licence as amended standard conditions E12 –

A1 to E12 – J10 in the stead of standard condition E12: Not Used. They are grouped

based on their particular purposes:

Amended standard conditions E12 – A1 to E12 – A3 include “mechanical” parts of

the licence, definitions and implementation provisions for the offshore transmission

regulatory regime;

Amended standard conditions E12 – B1 to E12 – B2 detail the conditions on the

scale, operation and management of the licensee’s business, including the geographic

area for which the OFTO is licensed;

Amended standard conditions E12 – C1 to E12 – C4 detail the business separation

and compliance requirements that are required to be met by the licensee;

Amended standard condition E12 – D1 outlines the regulatory reporting

requirements on the licensee; and

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Amended standard conditions E12 – J1 to E12 – J10 specify the revenue

entitlement of the licensee, and the elements that affect it, namely revenue adjustments

and performance incentives.

Schedule 1 to the licence describes the Specified Area and Schedule 2 to the licence sets out the revocation provisions that would apply to the OFTO licence.

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Offshore Electricity Transmission Licence

For

[xxx]

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Subject Matter Page

Part I Terms of the Licence 10

Part II The Standard Conditions 12

Part III The Amended Standard Conditions 15

Part IV The Special Conditions 76

Schedule 1 The Specified Area 77

Schedule 2 Revocation 78

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ELECTRICITY ACT 1989

SECTION 6(1)(b)

OFFSHORE ELECTRICITY TRANSMISSION LICENCE

FOR

[xxxx]

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PART I. TERMS OF THE LICENCE

1. This licence, granted under section 6(1)(b) of the Electricity Act 1989 ("the Act"),

authorises [xxx] a company registered in England and Wales under company

registration number [xxx] ("the licensee") whose registered office is situated at [xxx], to

participate in the transmission of electricity in the area specified in Schedule 1 for the

purpose of giving a supply to premises or enabling a supply to be so given during the

period specified in paragraph 3 below, subject to:

(a) the standard conditions of electricity transmission licences referred to in:

(i) paragraph 1 of Part II below, which shall have effect in the licence; and

(ii) paragraph 2 of Part II below, which shall only have effect in the licence if

brought into effect in accordance with the provisions of standard conditions

A2, A3 and A6,

subject to such amendments (if any) as are set out in Part III below (together "the

conditions").

(b) the special conditions, if any, set out in Part IV below ("the special conditions");

and

(c) such Schedules hereto, if any, as may be referenced in the conditions, the special

conditions or the terms of the licence.

2. This licence is subject to transfer, modification or amendment in accordance with the

provisions of the Act, the special conditions or the conditions.

3. This licence shall come into force on [INSERT DATE LICENCE COMES INTO

EFFECT] and unless revoked in accordance with Schedule 2, shall continue until

determined by not less than 18 months notice in writing given by the Authority to the

licensee no earlier than 19 years from [INSERT DATE LICENCE COMES INTO

EFFECT].

4. The provisions of section 109 (1) of the Act (Service of documents) shall have effect as

if set out herein and as if for the words "this Act", there were substituted the words "this

licence".

5. Without prejudice to sections 11 and 23(1) of the Interpretation Act 1978, Parts I to IV

inclusive of this licence and its Schedules, and the Schedules to this licence shall be

interpreted and construed in like manner as an Act of Parliament passed after the

commencement of the Interpretation Act 1978.

6. References in this licence to a provision of any enactment, where after the date of this

licence:

(a) the enactment has been replaced or supplemented by another enactment; and

(b) such enactment incorporates a corresponding provision in relation to fundamentally

the same subject matter,

shall be construed, so far as the context permits, as including a reference to the

corresponding provision of that other enactment.

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The Official Seal of the Gas and

Electricity Markets Authority

hereunto affixed is authenticated by:

[signature]

.......................................................

[director name]

Authorised in that behalf by the

Gas and Electricity Markets Authority

[insert legal seal]

Date: [insert date]

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PART II. STANDARD CONDITIONS

1. Standard conditions in effect in this licence

SECTION A SECTION B

Standard Condition A1 Standard Condition B1

Standard Condition A2 Standard Condition B2

Standard Condition A3 Standard Condition B3

Standard Condition A4 Standard Condition B4

Standard Condition A5 Standard Condition B5

Standard Condition A6 Standard Condition B6

Standard Condition A7 Standard Condition B7

Standard Condition B8

Standard Condition B9

Standard Condition B10

Standard Condition B11

Standard Condition B12

Standard Condition B13

Standard Condition B14

Standard Condition B15

Standard Condition B16

Standard Condition B17

Standard Condition B18

Standard Condition B19

Standard Condition B20

Standard Condition B21

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2. Standard conditions not in effect in this licence

SECTION C SECTION D SECTION E

Standard Condition C1 Standard Condition D1 Standard Condition E1

Standard Condition C2 Standard Condition D2 Standard Condition E2

Standard Condition C3 Standard Condition D3 Standard Condition E3

Standard Condition C4 Standard Condition D4 Standard Condition E4

Standard Condition C5 Standard Condition D4A Standard Condition E5

Standard Condition C5A Standard Condition D4B Standard Condition E6

Standard Condition C6 Standard Condition D5 Standard Condition E7

Standard Condition C6A Standard Condition D6 Standard Condition E8

Standard Condition C7 Standard Condition D7 Standard Condition E9

Standard Condition C8 Standard Condition D8 Standard Condition E10

Standard Condition C9 Standard Condition D9 Standard Condition E11

Standard Condition C10 Standard Condition D10 Standard Condition E12

Standard Condition C11 Standard Condition D11 Standard Condition E13

Standard Condition C12 Standard Condition D12 Standard Condition E14

Standard Condition C13 Standard Condition D13 Standard Condition E15

Standard Condition C14 Standard Condition D14 Standard Condition E16

Standard Condition C15 Standard Condition D15 Standard Condition E17

Standard Condition C16 Standard Condition D16 Standard Condition E18

Standard Condition C17 Standard Condition E19

Standard Condition C18 Standard Condition E20

Standard Condition C19 Standard Condition E21

Standard Condition C20 Standard Condition E22

Standard Condition C21 Standard Condition E23

Standard Condition C22 Standard Condition E24

Standard Condition C23

Standard Condition C24

Standard Condition C25

Standard Condition C26

Standard Condition C27

Note: A copy of the current standard conditions of electricity transmission licences can be

inspected at the principal office of the Authority. The above lists are correct at the date of this

licence but may be changed by subsequent amendments or modifications to the licence. The

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authoritative up-to-date version of this licence is available for public inspection at the

principal office of the Authority.

The electronic version of the Public Register is available on the website

(www.ofgem.gov.uk). While every effort has been made to ensure that the information on

this electronic version is correct, please note that it does not replace the Public Register which

may be inspected at the principal office of the Authority.

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PART III. THE AMENDED STANDARD CONDITIONS

1. Standard conditions amended in this licence

SECTION A SECTION E

Standard Condition A1 Standard Condition E12

Standard Condition E13

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Condition A1: Definitions and Interpretations

All definitions within the above condition remain the same in Condition A1 save the

following modification by way of addition of the underlined words to the following

definition:

"consolidated transmission business" for the purposes of standard conditions B1

(Regulatory Accounts), B15 (Price Control

Review Information) and B16 (Price

Control Revenue Reporting, Associated

Information) and E2 (Regulatory Accounts)

only, means the consolidation, for

regulatory accounting purposes, of the

business referred to in the definition of the

"transmission business".

Substituting for paragraph 11(a)(ii) of Condition A1 the following

11. (a) (ii) as not having effect in the licence until such time as the standard condition in

which the definition is used has effect within the licence in pursuance of

standard condition A2 (Application of Section C), or standard condition A3

(Application of Section D) or standard condition A6 (Application of Section

E);

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Amended Standard Condition E12–A1: Definitions and Interpretation

1. In these conditions unless the context otherwise requires:

"asset transfer" means the transfer to the licensee of

transmission assets to which this licence

relates as set out in Annex B to amended

standard condition E12–B1 (Transmission

System Area).

"associated business" means an affiliate, related undertaking, or

business unit of the transmission business or

the ultimate controller of the transmission

business.

"ex post assessment" means the assessment of the economic and

efficient costs which ought to have been

incurred in connection with the development

and construction of the licensee’s

transmission system undertaken by the

Authority in accordance with the Electricity

(Competitive Tenders for Offshore

Transmission Licences) Regulations 2010.

"external transmission activities" means any business of the licensee or any

affiliate or related undertaking of the

licensee comprising or ancillary to the

maintenance, repair or operation in an

emergency of any electricity distribution

system or any part of the national electricity

transmission system other than the licensee's

transmission system.

"relevant year" means a year beginning on 1 April of each

calendar year and ending on 31 March of the

following calendar year.

"relevant year t" means that relevant year for the purposes of

which any calculation falls to be made.

"relevant year t-1" means the relevant year immediately

preceding relevant year t and similar

expressions shall be construed accordingly.

2. Subject to paragraph 1, unless the context otherwise requires, words and expressions

used in the standard conditions of this licence shall bear the same meaning in amended

standard conditions E12–A1 to E12–J10.

3. Where a term is used in amended standard conditions E12–A1 to E12–J10 and is also

used in Section E of the standard conditions for electricity transmission licences then,

unless the context otherwise requires, it shall have the same meaning in amended

standard conditions E12–A1 to E12–J10 as is ascribed to that term in Section E of the

standard conditions.

4. Any reference in amended standard conditions E12–A1 to E12–J10 to:

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(a) a provision thereof;

(b) a provision of the standard conditions of electricity transmission licences;

(c) a provision of the standard conditions of electricity supply licences;

(d) a provision of the standard conditions of electricity distribution licences;

(e) a provision of the standard conditions of electricity generation licences;

(f) a provision of the standard conditions of electricity interconnector licences;

shall, if these or the standard conditions in question come to be modified, be construed,

so far as the context permits, as a reference to the corresponding provision of these or

the standard conditions in question as modified.

5. Any reference in this licence to the provisions of the Companies Act 1985 shall be

construed as including a reference to those provisions as amended, substituted, inserted

or repealed by corresponding provisions of the Companies Act 2006, or a statutory

instrument made under the Companies Act 2006.

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Amended Standard Condition E12–A2: Market Rate Revenue Adjustment

1. The purpose of this condition is to establish the process for adjusting (whether upwards

or downwards) the base transmission revenue (BRt) (as defined in amended standard

condition E12–J2 (Restriction of Transmission Revenue: Revenue from Transmission

Owner Services)) of the licensee that is required as a consequence of the difference

between:

(a) market rates assumed in the tender revenue stream (TRSt) and determined for the

post tender revenue adjustment (PTRAt) (both as defined in amended standard

condition E12–J2 (Restriction of Transmission Revenue: Revenue from

Transmission Owner Services)); and

(b) market rates determined on the date of the Authority’s direction pursuant to

paragraph 6 of this condition.

2. For the purpose of paragraph 1(a) the market rates determined for the PTRAt shall be

the market rates assumed in TRSt.

3. The licensee shall use reasonable endeavours to have in place on the date this condition

comes into force, an Authority approved market rate revenue adjustment methodology

statement as is necessary to facilitate the achievement of the market rate revenue

adjustment objectives set out in paragraph 4.

4. For the purpose of paragraph 3 of this condition, the market rate revenue adjustment

objectives are:

(a) that compliance with the market rate revenue adjustment methodology ensures that

the market rate revenue adjustment (MRAt) shall only reflect changes in market

rates;

(b) that compliance with the market rate revenue adjustment methodology ensures that

the market rate revenue adjustment (MRAt) shall take account of the difference

between market rates described in paragraph 1(a) and paragraph 1(b); and

(c) that compliance with the market rate revenue adjustment methodology ensures that

the market rate revenue adjustment (MRAt) can be effected in a manner which is

compatible with the financial close protocol.

5. For the purposes of paragraph 1, the market rate revenue adjustment (MRAt) shall be

calculated in accordance with the Authority approved market rate revenue adjustment

methodology statement.

6. As soon as reasonably practicable after this licence comes into force (and in any event,

no later than the date of asset transfer) the Authority may shall direct in writing the

value of the market rate revenue adjustment (MRAt), (as defined in paragraph 4 of

amended standard condition E12–J2 (Restriction of Transmission Revenue: Revenue

from Transmission Owner Services), calculated pursuant to paragraph 5).

7. In this condition:

"financial close protocol" means the process and/or timescales agreed

with the Authority to effect the funding for

asset transfer.

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"market rates" means the following:

(a) interest rates;

(b) retail price index swap rates;

(c) gilt rates; and

(d) index linked gilt rates.

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Amended Standard Condition E12–A3: Post Tender Revenue Adjustment

1. The purpose of this condition is to establish the process for adjusting (whether upwards

or downwards) the base transmission revenue (BRt) (as defined in amended standard

condition E12–J2 (Restriction of Transmission Revenue: Revenue from Transmission

Owner Services)) of the licensee that is required as a consequence of the difference

between:

(a) the Authority’s estimate of the costs associated with developing and constructing

the transmission system to which this licence relates; and

(b) the Authority’s assessment, once the transmission system is available for use for

the transmission of electricity, of the costs associated with developing and

constructing the transmission system to which this licence relates.

2. For the purposes of paragraph 1, the value of the post tender revenue adjustment

(PTRAt) shall account for:

(a) the difference between:

(i) the Authority’s estimate assumed in the tender revenue stream (TRSt) as

defined in amended standard condition E12–J2 (Restriction of Transmission

Revenue: Revenue from Transmission Owner Services) of the costs associated

with developing and constructing the transmission system to which this licence

relates; and

(ii) the Authority’s assessment, once the transmission system is available for use

for the transmission of electricity, of the costs associated with developing and

constructing the transmission system to which this licence relates.

(b) the economic and efficient costs incurred by the licensee as a consequence of the

difference between the estimate and assessment of the costs described in sub-

paragraphs 2(a)(i) and (ii) above.

3. The licensee shall use reasonable endeavours to have in place on the date this condition

comes into force, an Authority approved post tender revenue adjustment methodology

statement as is necessary to facilitate the achievement of the post tender revenue

adjustment objectives set out in paragraph 4.

4. For the purpose of paragraph 3 of this condition, the post tender revenue adjustment

objectives are:

(a) that compliance with the post tender revenue adjustment methodology ensures that

the post tender revenue adjustment (PTRAt) shall take account of the difference

between the Authority’s estimate and the Authority’s assessment described in sub-

paragraphs 2(a) (i) and (ii); and

(b) that compliance with the post tender revenue adjustment methodology ensures that

the post tender revenue adjustment (PTRAt) can be effected in a manner which is

compatible with the financial close protocol (as defined in amended standard

condition E12–A2 (Market Rate Revenue Adjustment)).

5. For the purposes of paragraph 1, the post tender revenue adjustment (PTRAt) shall be

calculated in accordance with the Authority approved post tender revenue adjustment

methodology statement.

6. As soon as reasonably practicable after this licence comes into force (and in any event,

no later than the date of asset transfer) the Authority may shall direct in writing, the

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value of the post tender revenue adjustment (PTRAt) (as defined in paragraph 4 of

amended standard condition E12–J2 (Restriction of Transmission Revenue: Revenue

from Transmission Owner Services), calculated pursuant to paragraph 5).

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Amended Standard Condition E12–B1: Transmission System Area

1. This licence is granted for the "[xxx] transmission system" within the Specified Area

(stated in Schedule 1 (Specified Area) of this licence) and more particularly defined in

paragraph 2.

2. In this condition, the "[xxx] transmission system" means the offshore transmission

system extending from point A to point B (defined below) together with all associated

cables, transformers, switchgear and connections, and all other plant or equipment

making up or supporting the said transmission system with the benefit, subject to the

applicable conditions therein, of all wayleaves and/or servitude rights relating thereto

where:

A is [the defined onshore connection point]

B is [the defined offshore connection point]

In this condition, the transmission area is the geographic area set out in Annex A to this

condition. The connection points of the transmission system are also defined by the

circuit diagram in Annex B to this condition.

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ANNEX A TO AMENDED STANDARD CONDITION E12–B1 (TRANSMISSION SYSTEM AREA)

The transmission system area is the marked area set out below.

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ANNEX B TO AMENDED STANDARD CONDITION E12–B1 (TRANSMISSION SYSTEM CIRCUIT)

The transmission system is defined by the circuit diagram set out below.

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Amended Standard Condition E12–B2: Activities Restrictions

1. Subject to the provisions of paragraph 2 below (made in accordance with section

7(2A)(a) of the Act), the licensee is authorised by paragraph 1 of Part I (Terms of the

Licence) of this licence to participate in the transmission of electricity for the purpose

of giving a supply to any premises or enabling a supply to be so given.

2. The licensee shall not:

(a) co-ordinate or direct the flow of electricity onto or over the whole or any part of

the national electricity transmission system except where permitted to do so under

the STC, subject to the approval of the Authority, or where required to do so by

any other licence condition; and

(b) outside of the transmission system area, make available assets comprising part of

the national electricity transmission system which are intended for the purpose of

conveying or affecting the flow of electricity, except where the Authority has

issued a direction to the licensee pursuant to standard condition E21 (Offshore

Transmission Owner of Last Resort) insofar as it relates to the transmission system

specified in that direction.

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Amended Standard Condition E12–C1: Conduct of the Transmission Business

1. The licensee shall conduct its transmission business in the manner best calculated to

secure that, in complying with its obligations under this licence:

(a) the licensee;

(b) any affiliate or related undertaking of the licensee including, for the avoidance of

doubt:

(i) any affiliate or related undertaking that intends to participate in a competitive

tender exercise to be appointed as an offshore transmission owner; orand

(ii) any affiliate or related undertaking participating in a competitive tender

exercise to be appointed as an offshore transmission owner;

that is a subsidiary of, or is controlled by the ultimate controller of, the licensee;

(c) any user of the national electricity transmission system; orand

(d) any other transmission licensee;

obtain no unfair commercial advantage including, in particular, any such advantage

from a preferential or discriminatory arrangement, being, in the case of such an

advantage accruing to the licensee, one in connection with a business other than its

transmission business.

2. Except insofar as the Authority may direct, the licensee shall secure and procure

separate premises, equipment, systems for recording and storing data, facilities, staff,

and property from:

(a) those owned by a transmission licensee that holds a co-ordination licence and is

responsible for co-ordinating and directing the flow of electricity onto or over the

national electricity transmission system; and

(b) those owned by any associated business of the licensee that is authorised to

generate or supply electricity.

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Amended Standard Condition E12–C2: Separation and Independence of the

Transmission Business

1. The licensee, in carrying out its licensed activities, shall put in place and at all times

maintain such systems of control and other governance arrangements which are

necessary to ensure that the licensee complies with the obligations contained in

standard condition E6 (Prohibition of Cross-subsidies), standard condition E7

(Restriction on Activity and Financial Ring Fencing), and amended standard condition

E12–C1 (Conduct of the Transmission Business).

2. Unless otherwise directed by the Authority, the licensee shall by no later than 30 days

after this condition comes into force have in place a statement ("the statement"),

approved by the Authority, describing the practices, procedures and systems which the

licensee has adopted (or intends to adopt) to secure compliance with paragraph 1 and in

particular (but without prejudice to the generality of paragraph 1) ensure compliance

with paragraph 4.

3. Where the Authority does not indicate otherwise within 60 days of receipt of the

statement, the statement shall be deemed to be approved by the Authority.

4. The statement shall in particular (but without prejudice to the generality of paragraph 1)

set out how the The licensee shall:

(a) maintain appropriate managerial and operational independence of the licensee from

any associated business in undertaking its activities under its licence, from any

associated business;

(b) except insofar as the Authority consents to the licensee not doing so, the licensee

shall ensure that:

(i) a transmission licensee that holds a co-ordination licence and is responsible for

co-ordinating and directing the flow of electricity onto or over the national

electricity transmission system; and

(ii) any associated business of the licensee that is to generate or supply electricity.

may not use or have access to:

(aa) premises or parts of premises occupied by persons engaged in, or

engaged in respect of, the management or operation of the transmission

business or any external transmission activities;

(bb) systems for the recording, processing or storage of data to which persons

engaged in, or engaged in respect of, the management or operation of the

transmission business or any external transmission activities also have

access;

(cc) equipment, facilities or property employed for the management or

operation of the transmission business or any external transmission

activities; or

(dd) the services of persons who are (whether or not as their principal

occupation) engaged in, or in respect of, the management or operation of

the transmission business or any external transmission activities; and

(iii) it can and does, insofar as is legally possible, prevent any person who has

ceased to be engaged in, or in respect of, the management or operation of the

29

transmission business from being engaged in, or in respect of, the activities of

any associated business of the licensee until the expiry of an appropriate time

from the date on which he ceased to be engaged by the transmission business,

where that associated business is either:

(aa) a transmission licensee that holds a co-ordination licence and is

responsible for co-ordinating and directing the flow of electricity onto or

over the national electricity transmission system; or

(bb) authorised to generate or supply electricity.

5. The managerial and operational independence referred to in paragraph 4(a) above shall

include the establishment of separate boards of directors for the transmission business

and for any associated businesses.

6. Each member of such boards of directors or executives for associated businesses who is

also a director of the offshore transmission business shall fulfil their role in relation to

the taking of such decisions as if he or she were a director of a legally incorporated

company whose sole business is the business in respect of which the board he or she is

a member of has been established.

7. The licensee shall revise the statement prepared in accordance with paragraph 2 when

circumstances change such that the statement prepared in accordance with paragraph 2

no longer secures compliance with paragraph 1 and such revision of the statement shall

only become effective once the Authority has approved the revised statement in

accordance with paragraph 2 or 3.

8. The licensee shall use its best endeavours to ensure compliance with the terms of the

statement as from time to time revised and approved by the Authority.

9. The licensee shall publish a copy of the approved statement prepared in accordance

with paragraph 2 (or the latest approved revision) on its company website within 7 days

of its approval by the Authority.

30

Amended Standard Condition E12–C3: Restriction on use of certain information

1. Any information relating to or deriving from the management or operation of the

transmission business shall, for the purposes of this condition, be treated as

confidential information.

2. The licensee shall not (and shall procure that its affiliates and related undertakings

shall not) disclose or authorise access to confidential information:

(a) save to the extent provided by paragraph 3 sub-paragraphs 3(b) to (d), to such of its

(or its affiliates' or related undertakings') employees, agents, advisers, consultants

or contractors as are engaged in, or in respect of, the management or operation of

any other business (whether or not a separate business) of the licensee; or

(b) save to the extent permitted by paragraph 3, to any other person.

3. The licensee shall (and shall procure that its affiliates and related undertakings

shall) disclose or authorise access to confidential information only:

(a) in the following circumstances, namely:

(i) to such of its (or its affiliates' or related undertakings') employees, agents,

advisers, consultants or contractors as are engaged in, or in respect of, the

management or operation of the transmission business or any external

transmission activities and who require access to the information for that

purpose;

(ii) to personnel of any holder of a transmission licence engaged in the external

transmission activities of that transmission licence holder, to the extent

necessary for the performance by such personnel of those external

transmission activities, and the use by such personnel of that information for

that purpose;

provided that effective arrangements are maintained in place at all times for

ensuring that no further disclosure of any information supplied or obtained

pursuant to this paragraph is made and that such information is used only for the

purpose of the transmission business or any external transmission activities of the

licensee;

(b) where the licensee (or any affiliate or related undertaking of the licensee) is

required or permitted to disclose such information by virtue of:

(i) any requirement of a competent authority;

(ii) the standard conditions of any licence granted or taking effect as if granted

under the Act or any document referred to in such a licence with which it is

required by virtue of the Act or that licence to comply;

(iii) any other requirement of law; or

(iv) the rules of the Electricity Arbitration Association or of any judicial or other

arbitral process or tribunal of competent jurisdiction;

(c) where such information was provided by or relates to any person who has notified

(or otherwise agreed with) the licensee that it need not be treated as confidential;

(d) where such information, not being information provided by or relating to any

person other than the licensee, is placed by the licensee in the public domain; or

31

(e) where such information is required for the purposes of assisting the holder of a co-

ordination licence, to prepare for and plan and develop the operation of the national

electricity transmission system

and in each case the licensee shall disclose or authorise access to the confidential

information only insofar as is necessary or appropriate in all the circumstances.

4. The licensee shall use all reasonable endeavours to ensure that any person who is in

possession of or has access to confidential information in accordance with sub-

paragraph 3(a) shall use such information only for the purposes of the transmission

business or any external transmission activities.

5. In this condition:

"competent authority" means the Secretary of State, the Authority,

the Compliance Officer, the Stock

Exchange, the Panel on Take-overs and

Mergers, or any local or national agency,

regulatory body, authority, department,

inspectorate, minister (including Scottish

Ministers), ministry, official or public or

statutory person (whether autonomous or

not) of, or of the government of, the United

Kingdom, the United States of America or

the European Community.

"confidential information" means any information relating to or

deriving from the management or operation

of the transmission business.

"Electricity Arbitration Association" means the unincorporated members' club of

that name formed inter alia to promote the

efficient and economic operation of the

procedure for the resolution of disputes

within the electricity supply industry by

means of arbitration or otherwise in

accordance with its arbitration rules.

32

Amended Standard Condition E12–C4: Appointment of Compliance Officer

1. The licensee shall, following consultation with the Authority, appoint a competent

person (who shall be known as the "Compliance Officer") for the purpose of facilitating

compliance by the licensee with this condition and with standard condition E6

(Prohibition of Cross-subsidies), standard condition E7 (Restriction on Activity and

Financial Ring Fencing), amended standard condition E12–C1 (Conduct of the

Transmission Business), and amended standard condition E12 –C2 (Separation and

Independence of the Transmission Business) and amended standard condition E12–C3

(Restriction on use of certain information) (the "relevant duties").

2. The licensee shall at all times engage the services of the Compliance Officer for the

performance of such duties and tasks as the licensee considers it appropriate to assign

to him for the purposes specified at in paragraph 1, which duties and tasks shall include

those set out at in paragraph 7.

3. The licensee shall ensure that the Compliance Officer is not engaged in any activity of

the licensee’s transmission system other than the activity of being a Compliance

Officer. or, Eexcept to the extent that the Authority consents otherwise, the licensee

shall ensure that the Compliance Officer is not engaged in any activity of any

associated business the activities, not including other than the activity of being a

Compliance Officer, of any associated business.

4. The licensee shall establish a compliance committee (being a committee of the board of

directors of the licensee) for the purpose of overseeing and ensuring the performance of

the duties and tasks of the Compliance Officer set out in paragraph 7 and the

compliance of the licensee with its relevant duties. Such a compliance committee shall

report to the board of directors of the licensee and shall include among its members a

director responsible for day-to-day compliance with the activities of this licence and

such persons from within the licensee’s business as are responsible for the management

of regulatory issues relating to the licence.

5. The licensee shall procure that the Compliance Officer:

(a) is provided with such staff, premises, equipment, facilities and other resources; and

(b) has such access to its premises, systems, information and documentation

as, in each case, he might reasonably expect to require for the fulfilment of the duties

and tasks assigned to him.

6. The licensee shall make available to the Compliance Officer a copy of any complaint or

representation received by it from any person in respect of a matter arising under or by

virtue of the relevant duties.

7. The duties and tasks assigned to the Compliance Officer shall include:

(a) providing relevant advice and information to the licensee for the purpose of

ensuring its compliance with the relevant duties;

(b) monitoring the effectiveness of the practices, procedures and systems adopted by

the licensee in accordance with the statement referred to in amended standard

condition E12–C2 (Separation and Independence of the Transmission Business)

and reporting thereon, this shall include, but not be limited to:

(i) ensuring the contracts of employment or engagement of relevant personnel

shall include a statement on the importance of not disclosing information to

33

other parties set out in paragraph 2 of amended standard condition E12–C1

(Conduct of the Transmission Business). For this purpose a relevant member

of staff or external person or consultant acting in such a role is anyone who are

aware of any information which could enable any unfair commercial

advantage being obtained including, in particular, any such advantage from a

preferential or discriminatory arrangement, being, in the case of such an

advantage accruing to the licensee, one in connection with a business other

than its transmission business;

(ii) ensuring that each of the processes required under the Standard Conditions is

monitored in respect of the effectiveness of its practices, procedures, systems

and the supervision and sign off process relating to the release of information

which could enable an unfair commercial advantage to be obtained by the

parties set out in paragraph 2 of amended standard condition E12–C1 (Conduct

of the Transmission Business);

(c) advising whether, to the extent that the implementation of such practices,

procedures and systems require the co-operation of any other person, they are

designed so as to reasonably admit the required co-operation;

(d) investigating any complaint or representation made available to him in accordance

with paragraph 6;

(e) recommending and advising upon the remedial action which any such investigation

has demonstrated to be necessary or desirable;

(f) providing relevant advice and information to the licensee (including individual

directors of the licensee) and the compliance committee established under

paragraph 4 of this condition, for the purpose of ensuring its implementation of:

(i) the practices, procedures and systems adopted in accordance with the

statement referred to at paragraph 2 of amended standard condition E12–C2

(Separation and Independence of the Transmission Business); and

(ii) any remedial action recommended in accordance with sub-paragraph (e);

(g) reporting to the compliance committee any instances which come to his attention,

relating to a member of either any of the boards established under paragraph 5 of

amended standard condition E12–C2 (Separation and Independence of the

Transmission Business), taking into account the interests of a business other than

that in respect of which the board of which he is a member of has been established;

(h) reporting annually to the compliance committee established under paragraph 4 of

this condition, in respect of each year after this condition comes into force, as to his

activities during the period covered by the report, including the fulfilment of the

other duties and tasks assigned to him by the licensee; and

(i) reporting annually to the board of directors of the licensee as to his activities

during the period covered by the report, including the fulfilment of the other duties

and tasks assigned to him by the licensee.

8. As soon as is reasonably practicable following each annual report of the compliance

officer, the licensee shall produce a report in a form approved by the Authority:

(a) as to its compliance during the relevant year with the relevant duties; and

(b) as to its implementation of the practices, procedures and systems adopted in

34

accordance with the statement referred to at paragraph 2 of amended standard

condition E12–C2 (Separation and Independence of the Transmission Business).

9. The report produced in accordance with paragraph 8 shall in particular:

(a) detail the activities of the Compliance Officer during the relevant year;

(b) refer to such other matters as are or may be appropriate in relation to the

implementation of the practices, procedures and systems adopted in accordance

with the statement at paragraph 2 of amended standard condition E12–C2

(Separation and Independence of the Transmission Business); and

(c) set out the details of any investigations conducted by the compliance officer,

including:

(i) the number, type and source of the complaints or representations on which

such were based;

(ii) the outcome of such investigations; and

(iii) any remedial action taken by the licensee following such investigations;

(d) be accompanied by a certificate, approved by a resolution of the board of directors

of the licensee and signed by a director pursuant to that resolution, on the degree to

which the licensee has achieved compliance with its relevant duties and that the

report of the compliance officer fairly presents the licensee’s compliance with its

relevant duties.

10. The licensee shall, as soon as reasonably practicable, submit to the Authority a copy of

the report produced in accordance with paragraph 8 of this condition along with any

supporting information and the licensee shall also publish a copy of the report on its

website.

35

Amended Standard Condition E12–D1: Offshore Regulatory Reporting

Part A: Application and Purpose

1. The purpose of this condition is to secure the collection of specified information, to an

appropriate degree of accuracy by the licensee so as to enable the Authority to monitor

effectively the revenue of the consolidated transmission business.

Part B: Offshore Regulatory Reporting - Regulatory Instructions and Guidance and

Specified Information

2. For the purposes of this condition:

"offshore regulatory reporting – regulatory instructions and guidance" means the

Offshore Transmission Owner Regulatory Instructions and Guidance available on the

Ofgem website as modified from time to time under paragraph 13 and subject to

paragraphs 14 to 18 shall include (without limitation):

(a) the definition of specified information as detailed in the offshore regulatory

reporting – regulatory instructions and guidance, to be collected pursuant to this

condition which for the purposes of paragraph 7 is information relating to:

(i) all associated terms used in the derivation of the licensee’s revenue entitlement

as defined in the relevant section of amended standard conditions E12–A1 to

E12–J10 of the licensee’s transmission licence for purposes of paragraph 7(a)

(Audited Revenue Return);

(ii) the allowed revenue term, the actual revenue term and income derived from

excluded services as defined in the licensee’s transmission licence for the

purpose of paragraph 7 (b) (Forecast Revenue Return);

(iii) all associated cost terms to reconcile the costs of the licensee to its regulatory

accounts for the purposes of the cost reporting pack referred to in paragraph

7(c);

(iv) the associated information and parameters used in the determination of the

transmission system availability incentive as defined in amended standard

condition E12–J4 (Restriction of Transmission Revenue: Annual Revenue

Adjustments) for the purposes of paragraph 7 (d); and

(v) the associated information and parameters used in the determination of the

incremental capacity incentive as defined in amended standard condition E12–

J4 (Restriction of Transmission Revenue: Annual Revenue Adjustments) for

the purposes of paragraph 7(e).

(b) requirements for recording specified information which are reasonably necessary to

enable an appropriate auditor to determine the accuracy and reliability of specified

information;

(c) requirements as to the form and manner in which specified information shall be

provided to the Authority (including templates for doing so);

(d) requirements as to the form and manner in which specified information shall be

recorded and the standards of accuracy and reliability with which it shall be

recorded; and

(e) requirements as to the timing of the provision of specified information to the

Authority in respect of each relevant year.

36

3. The licensee shall:

(a) establish and maintain appropriate systems, processes and procedures to measure

and record specified information in respect of the commencement relevant year and

for each subsequent relevant year and in accordance with the offshore regulatory

reporting - regulatory instructions and guidance (including any associated

information therein) for the time being in force pursuant to this condition;

(b) maintain all systems of control and other governance arrangements that ensure the

information collected and reported to the Authority is in all material respects

accurate and complete and is fairly presented and that all such systems of control

and other governance arrangements are kept under regular review by the directors

of the licensee with a view to ensuring that they remain effective for this purpose;

and

(c) shall provide all such assistance as may be reasonably required to permit the

Authority to review such systems from time to time.

4. The licensee shall notify the Authority immediately in the event that it discovers errors

in the information or calculations used to derive the information submitted to the

Authority under this licence condition.

5. The licensee shall collect the specified information required by the offshore regulatory

reporting - regulatory instructions and guidance issued pursuant to this condition from

the date on which such offshore regulatory reporting - regulatory instructions and

guidance are issued by the Authority.

Part C: Information to be provided to the Authority

6. The licensee shall comply with the relevant provisions and information requirements of

the offshore regulatory reporting - regulatory instructions and guidance issued pursuant

to this condition.

7. Subject to paragraph 8, from the date of asset transfer, the licensee shall provide the

Authority with:

(a) the information specified in the templates for the Audited Revenue Return

contained in the offshore regulatory reporting - regulatory instructions and

guidance by no later than 31 July following the end of the relevant year to which

such information relates;

(b) the information specified in the templates for the cost reporting pack contained in

the offshore regulatory reporting - regulatory instructions and guidance by no later

than 31 July following the end of the relevant year to which such information

relates;

(c) the information specified in the template for the transmission system availability

incentive contained in the offshore regulatory reporting - regulatory instructions

and guidance by no later than 31 July following the end of the relevant year to

which the information relates;

(d) the information specified in the template for the incremental capacity adjustment

contained in the offshore regulatory reporting - regulatory instructions and

guidance by no later than 31 July following the end of the relevant year to which

the information relates;

(e) where requested by the Authority the information specified in the template for the

37

Forecast Revenue Return contained in the offshore regulatory reporting -

regulatory instructions and guidance, being the licensee’s estimate of that

information made on or before 1 April; and

(f) other requirements as to the timing of the provision of the information specified in

the templates from the offshore regulatory reporting – regulatory instructions and

guidance in respect of each relevant year, at such regular periods as the Authority

determines.

8. Where licence grant falls between 1 January and 31 March of any year the reporting

requirements specified in sub-paragraphs 7(a)-(d) (inclusive) will not be required on the

first 31 July following licence grant. Where licence grant falls outside of this period the

reporting requirements specified in sub-paragraphs 7(a)-(d) (inclusive) shall be required

on the first 31 July unless the licensee makes alternative arrangements with the

Authority. The reporting requirements specified in sub-paragraphs 7(a)-(d) (inclusive)

shall be required on 31 July in all subsequent years unless the licensee is notified

otherwise by the Authority.

Part D: Audit Requirements

9. The information referred to in sub-paragraphs 7(a) and 7(b) shall, at the Authority’s

direction, be accompanied by a report addressed to the Authority from the auditors,

stating their findings thatwhether in their opinion:

(a) the information provided in accordance with sub-paragraphs 7(a) and 7(b) has been

properly prepared in accordance with the offshore regulatory reporting - regulatory

instructions and guidance; and

(b) the amounts presented are in accordance with the licensee’s records which have

been maintained in accordance with paragraph 3 of this condition.

10. The licensee shall require that any report from the auditors, referred to in paragraph 9,

is accompanied by a letter from the auditors to the Authority detailing the procedures

that the auditors have followed in reaching their opinion.

11. For the purposes of paragraph 9, the licensee shall at its own expense enter into a

contract of appointment with the auditors, which includes a term requiring that the audit

be conducted in accordance with all relevant auditing standards in force on the last day

of the relevant year to which the audit relates as would be appropriate.

12. The licensee shall (and must procure, insofar as it is able to do so, that any affiliate or

related undertaking of the licensee shall) co-operate fully with the auditors so as to

enable them to complete and report to the Authority on any audit carried out in

accordance with paragraph 9.

Part E: Modification to the Offshore Regulatory Reporting -Regulatory Instructions

and Guidance

13. Where the Authority considers that the offshore regulatory reporting - regulatory

instructions and guidance should be modified in such way as is necessary more

effectively to achieve the purposes of this condition, the Authority may, subject to

paragraphs 14 to 16, modify the offshore regulatory reporting - regulatory instructions

and guidance by issuing a direction to all relevant transmission licensees.

14. Before issuing a direction under paragraph 13, the Authority, by notice given to all

relevant transmission licensees, shall:

38

(a) state that it proposes to make a modification, and set out the date on which it

proposes that this should take effect;

(b) set out the text of the modification, the purpose and effect of the modification, and

the reasons for proposing it; and

(c) specify the time (not less than 30 days from the date of the notice) within which

representations or objections with respect to the proposed modification may be

made,

and consider any representations or objections which have been duly made and are not

withdrawn, and give reasons for its decision.

15. Where any proposed modification of the offshore regulatory reporting - regulatory

instructions and guidance relates to a requirement to provide specified information to a

greater level of accuracy than was previously required, the Authority may only make

such modification with the consent of each licensee to whom such modification relates,

provided that such consent may not be unreasonably withheld or delayed by any

relevant licensee.

16. Any modification of the offshore regulatory reporting - regulatory instructions and

guidance under paragraph 13 to introduce an additional category of specified

information or to enlarge an existing category of information shall not exceed what may

reasonably be requested from the licensee by the Authority under paragraph 1 of

standard condition E5 (Provision of Information to the Authority).

17. The provisions of the offshore regulatory reporting - regulatory instructions and

guidance may not exceed what is necessary to achieve the purposes of this condition.

18. Nothing in this condition should require the licensee to produce any documents which it

could not be compelled to produce or give evidence in civil proceedings before a court.

39

Amended Standard Condition E12–J1: Restriction of Transmission Revenue:

Definitions

1. In this condition and in amended standard conditions E12–J2 to E12–J10 inclusive:

"allowed pass-through items" means the items referred to in paragraph 2 of

amended standard condition E12–J3

(Restriction of Transmission Revenue

charges: Allowed Pass-through Items).

"allowed transmission owner revenue" means in the commencement relevant year

and every subsequent relevant year the

revenue calculated in accordance with the

formula set out in paragraph 4 of amended

standard condition E12–J2 (Restriction of

Transmission Revenue: Revenue from

Transmission Owner Services);

"average specified rate" means the average of the daily base rates of

Barclays Bank plc (or any other bank as the

Authority may from time to time direct)

during the period in respect of which the

calculation falls to be made.

"base date" means the date at which the transmission

asset prices are based

"base transmission revenue" means the revenue calculated in accordance

with the formula set out in paragraph 4 of

amended standard condition E12–J2

(Restriction of Transmission Revenue:

Revenue from Transmission Owner

Services).

"charge restriction conditions" means any condition (including, without

limitation, any revenue restriction condition)

of this licence which places a monetary

limitation on the revenue which may be

recovered by the licensee during a given

period;

"closing relevant year" means the relevant year, commencing 1

April 20[xx], being no earlier than 20 years

after the commencement relevant year.

"commencement relevant year" means the relevant year, commencing 1

April 20[xx], in which this condition comes

into force. In this relevant year t=1.

"Crown Estate Lease" means any lease, licence, or agreement

between the Licensee and the Crown Estate

relating to the use of Crown Estate property

to enable the transmission of electricity over

the licensee’s transmission system.

40

"event" means any unscheduled or unplanned

occurrence on, or relating to, a Transmission

System including, without limitation, faults,

incidents, breakdowns and adverse weather

conditions.

"excluded services" means those services provided by the

licensee as part of its transmission business

which in accordance with the principles set

out in paragraph 1 of amended standard

condition E12–J10 (Excluded Services), fall

are to be treated as excluded services.

"exceptional event" means an Event or circumstance that is

beyond the reasonable control of the

licensee and which results in or causes a

Transmission Service Reduction and

includes (without limitation) an act of God,

an act of the public enemy, war declared or

undeclared, threat of war, terrorist act,

blockade, revolution, riot, insurrection, civil

commotion, public demonstration, sabotage,

act of vandalism, fire (not related to

weather), governmental restraint, Act of

Parliament, other legislation, bye law or

directive (not being any order, regulation or

direction under section 32, 33, 34 and 35 of

the Act) or decision of a Court of competent

authority or the European Commission or

any other body having jurisdiction over the

activities of the licensee provided that lack

of funds shall not be interpreted as a cause

beyond the reasonable control of the

licensee. For the avoidance of doubt,

weather conditions which are reasonably

expected to occur at the location of the event

or circumstance are not considered to be

beyond the reasonable control of the

licensee.

"incentive period y" means the twelve month period commencing

1 January of relevant year t-2 and ending 31

December of relevant year t-1.

"income adjusting event"

has the meaning set out in paragraph 15 of

amended standard condition condution E12–

J3 (Restriction of Transmission Revenue:

Allowed Pass-through Items)

41

"metered" means in relation to any quantity of units of

electricity transmitted, as measured by a

meter installed for such purpose or (where

no such meter is installed) as otherwise

reasonably calculated.

"network rates" means:

(a) in England and Wales, the rates payable

by the licensee in respect of

hereditaments on the Central Rating

Lists (England and Wales) compiled

under section 52 of the Local

Government Finance Act 1988; and

(b) in Scotland, the rates payable by the

licensee in respect of any land and

heritages on the Valuation Rolls

compiled under the Local Government

Scotland Act 1975, the Local

Government etc (Scotland) Act 1994, or

any legislation amending or replacing

those enactments

"network rates revaluation" means the exercise undertaken, typically at

five yearly intervals, to reset the network

rates payable by the licensee.

"outage" means a planned temporary reduction in the

extent to which transmission services are

provided by a Transmission Owner.

"regulated transmission revenue" means the revenue (measured on an accruals

basis) derived from the provision of

transmission owner services (including to

any separate business, other than the

transmission business) in the relevant year,

after deduction of value added tax (if any)

and any other taxes based directly on the

amounts so derived.

"Retail Price Index number" means the monthly index number of retail

prices as identified by series CHAW by the

Office of National Statistics where the index

on 13 January 1987 = 100

"services reduction" means the licensee’s transmission services

are not, other than by reason of an Outage,

physically capable of being provided or are

not capable, for immediate safety reasons or

pursuant to environmental obligations, of

being provided.

"target availability" means the target availability in percentage

terms and is set at 98 per cent.

42

"tender relevant year" means the relevant year in which the date

that the tender exercise to which the grant of

this licence relates was concluded, falls.

"transmission owner services" means all services provided as part of the

transmission business other than excluded

services.

"transmission service reduction" means a reduction in normal service

capability transmission services as a result

of an outage or services reduction.

"unit" means a kilowatt hour.

43

Amended Standard Condition E12–J2: Restriction of Transmission Revenue: Revenue

from Transmission Owner Services

1. The purpose of this condition is to establish the revenue restriction that determines the

allowed transmission owner revenue that the licensee may earn from its transmission

owner services in any relevant year.

2. The revenue entitlement of the licensee, determined in accordance with paragraph 4

below, shall commence upon the date this condition comes into force.

Part A: Transmission Owner Revenue Restriction

3. The licensee shall take all appropriate steps within its power to ensure that in any

relevant year t, regulated transmission revenue shall not exceed the allowed

transmission owner revenue calculated in accordance with the formula given in

paragraph 4 below.

Formula for Allowed Transmission Owner Revenue (OFTOt)

4. For the purposes of this condition, allowed transmission owner revenue (OFTOt) shall

take the value of zero in all relevant years preceding the commencement relevant year t

and thereafter allowed transmission owner revenue (OFTOt) shall be calculated in

accordance with the following formula:

(1)

where:

OFTOt means allowed transmission owner revenue in the relevant year t.

BRt means base transmission revenue which shall be calculated as:

(2)

where:

ATRt means the adjusted tender revenue which shall be calculated

as:

(3)

where:

TRSt means the tender revenue stream and shall take the

value of [£xxx], in tender relevant year prices;

MRAt means the market rate revenue adjustment and shall

take the value set out in any direction issued

pursuant to amended standard condition E12–A2

(Market Rate Revenue Adjustment), otherwise it

shall take the value zero;

PTRAt means the post tender revenue adjustment and shall

take the value set out in any direction issued

pursuant to amended standard condition E12–A3

(Post Tender Revenue Adjustment), otherwise it

shall take the value zero;

44

PRt means the proportion of revenue term which adjusts the

OFTO revenue for partial years representing the proportion

of to be recoverable in that relevant year and shall

take the value 1, except:

(a) in respect of the period before asset transfer in the

commencement relevant year where it shall take the

value zero.

(b) in respect of the period on or after asset transfer in

the commencement relevant year where it shall take

the value determined by the following formula:

(4)

(c) in respect of the closing relevant year where it shall

take the value determined by the following formula:

(5)

(d) in all relevant years subsequent to the closing

relevant year, where it shall take the value zero.

RITt is the revenue indexation adjustment term for the relevant

year t, and shall be derived from the following formula:

(6)

where:

RPI (September)t means the Retail Price Index number for

the month of September relevant year t;

and

RPI (base date) means the Retail Price Index number for

the month in which the base date

occurred;

however:

in the tender relevant year and in each relevant year prior to

the first indexation adjustment, RITt shall take the value 1;

and

the first revenue indexation adjustment for relevant year t

shall only occur when in relevant year t-1 the month of

September has occurred since the base date.

PTt means the pass through revenue adjustment term, whether of a positive

or of a negative value, made in the relevant year t in respect of allowed

pass through items as derived in accordance with amended standard

condition E12–J3 (Restriction of Transmission Revenue: Allowed

45

Pass-through Items);

PAt means the performance availability revenue adjustment term, whether

of a positive or of a negative value, made in the relevant year t in

respect of annual revenue adjustments as derived in accordance with

amended standard condition E12–J4 (Restriction of Transmission

Revenue: Annual Revenue Adjustments);

Kt means the revenue restriction correction factor, which is the difference

between the regulated transmission revenue (ARt-1) and the allowed

transmission revenue (OFTOt-1) in the previous year, whether of a

positive or of a negative value, which takes the value of zero in the first

relevant year (t=1). In subsequent years, it is calculated in accordance

with the formula below:

(7)

where:

ARt-1 means the regulated transmission revenue in respect of the

relevant year t-1.

OFTOt-1 means the allowed transmission owner revenue in the

relevant year t-1.

It means the average specified rate (as defined under those

words in amended standard condition E12–J1 (Restriction of

Transmission Revenue: Definitions)) in the relevant year t.

PIt means the penalty interest rate in relevant year t, which is

equal to:

(a) where

(8)

the penalty interest rate shall be 4; and

(b) otherwise, it shall take the value zero.

46

Amended Standard Condition E12–J3: Restriction of Transmission Revenue: Allowed

Pass-through Items

1. The purpose of this condition is to provide for revenue adjustments to reflect certain

costs that can be passed through to consumers as part of allowed transmission owner

revenue.

2. For the purposes of paragraph 4 of amended standard condition E12–J2 (Restriction of

Transmission Revenue: Revenue from Transmission Owner Services) PTt is derived

from the following formula:

(9)

where:

LFt means the licence fee cost adjustment term, whether of a positive or of a

negative value, and shall be determined in accordance with paragraph 3.

RBt means the network rates cost adjustment term, whether of a positive or of a

negative value, and shall be determined in accordance with paragraphs 4 and 5.

CELt means the Crown Estate Lease cost adjustment term, whether of a positive or

negative value, and shall be determined in accordance with paragraph 6.

DCt means the decommissioning cost adjustment term and shall be determined in

accordance with paragraphs 7 to 13.

IATt means the income adjusting event revenue adjustment term, whether of a

positive or of a negative value, and shall be determined in accordance with

paragraphs 14 to 24.

TPDt means the temporary physical disconnection payment term and shall be

determined in accordance with paragraph 25.

TCAt means the tender fee cost adjustment term and shall be determined in

accordance with paragraph 26.

MCAt means the Marine and Coastal Access Act 2009 cost adjustment term and shall

be determined in accordance with paragraphs 27 to 33.

Formula for the Licence Fee Cost Adjustment (LFt)

3. For the purposes of paragraph 2, LFt is an amount in respect of licence fee payments

and means the amount equal to the payments made by the licensee, in the relevant year

t, in accordance with its obligations set out in standard condition A4 (Payments to the

Authority).

Formula for the Network Rates Cost Adjustment (RBt)

4. For the purposes of paragraph 2, RBt is an amount in respect of networks rates

payments and means, subject to paragraph 5 of this condition, the amount equal to the

rates payments made by the licensee in the relevant year t.

5. The licensee shall at the time of network rates revaluation use reasonable endeavours to

minimise the costs that it will incur in respect of network rates.

Formula for the Crown Estate Lease Cost Adjustment (CELt)

6. For the purposes of paragraph 2, CELt is an amount equal to the payments made by the

licensee to the Crown Estate, in the relevant year t, in accordance with its obligations

47

set out in its Crown Estate Lease in respect of the:

(a) annual rent of the seabed; and

(b) legal expenses of the Crown Estate for the preparation, negotiation and completion

of the Crown Estate Lease.

Formula for the Decommissioning Cost Adjustment (DCt)

7. Where the licensee considers, and can provide supporting evidence, that there will be

additional costs and/or expenses in relation to the licensee’s obligations with respect to

decommissioning of the transmission system that has arisen due to a change in

legislative requirements, then the licensee shall give written notice of this change to the

Authority.

8. A notice provided to the Authority under paragraph 7 shall give particulars of:

(a) the change in legislative requirements to which the notice relates and the reason(s)

why the licensee considers that it will face additional costs or expenses in

complying with those obligations, and demonstrate that such costs and expenses

are not included within the allowed transmission owner income;

(b) the expected amount of any change in costs and/or expenses that can be

demonstrated by the licensee to be caused by the change in decommissioning

requirements and how the amount of these costs and/or expenses has been

calculated;

(c) the proposed amount of any allowed revenue adjustment proposed as a

consequence of the change in decommissioning requirements and how this allowed

revenue adjustment has been calculated; and

(d) any other analysis or information, which the licensee considers sufficient to enable

the Authority to fully assess the change in legislative requirements to which the

notice relates.

9. If the Authority considers that the analysis or information provided in sub-paragraphs

8(a) to 8(d) above is insufficient to enable the Authority to assess whether a change in

decommissioning requirements has occurred and/or the amount of any allowed income

adjustment that might be approved, the Authority can request that the supporting

evidence be supplemented with additional information that it considers appropriate. If

the Authority requests that the supporting evidence be supplemented with additional

information, the licensee shall provide such information to the Authority within not

more than one month of the Authority requesting such information.

10. A notice referred to in paragraph 7 shall be given as soon as is reasonably practicable

after the occurrence of the change in requirements, and, in any event, not later than

three months after the end of the relevant year in which it occurs.

11. The Authority shall determine:

(a) whether any or all of the costs and/or expenses given in a notice pursuant to

paragraph 7 were caused by the change in legislative requirements;

(b) if so, whether the amount of the proposed income adjustment ensures that the

financial position and performance of the licensee are, insofar as is reasonably

practicable, the same as if that change in legislative decommissioning requirements

had not taken place, and if not, what allowed income adjustment would secure that

effect; and

48

(c) the periods, if any, over which the amounts should apply.

12. In relation to the relevant year t, the decommissioning cost adjustment term (DCt) shall

be:

(a) the value determined by the Authority under paragraph 11 above; or

(b) if the Authority has not requested additional information under paragraph 9 and the

Authority has not made a determination under paragraph 11 above within three

months of the date on which notice given by the licensee was provided to the

Authority, the amount of the allowed income adjustment proposed by the licensee

in that notice given to the Authority; or

(c) if the Authority requests additional information under paragraph 9 and the

Authority has not made a determination under paragraph 11 above within three

months after receiving the additional information requested, the amount of the

allowed income adjustment proposed by the licensee in the notice given to the

Authority; or

(d) in all other cases the value zero, including situations where the Authority has not

made a determination under paragraph 11 above within three months of the date on

which notice given by the licensee provided to the Authority, or within three

months of the date on which the Authority received additional information if

requested under paragraph 9, and the Authority has, before the end of the

appropriate three month period, informed the licensee that the Authority considers

that the analysis or information provided in accordance with paragraphs 8 and/or 9

is insufficient to enable the Authority to assess whether additional costs or

expenses have occurred and/or the amount of any allowed income adjustment.

13. The Authority’s decision in relation to any notice given under paragraph 7 shall be in

writing, shall be copied to the licensee and shall be in the public domain.

Formula for a revenue adjustment in respect of anthe Income Adjusting Event

Revenue Adjustment Term (IATt)

14. Where the licensee considers, and can provide supporting evidence that, in respect of

relevant year t, there have been costs and/or expenses that have been incurred or saved

by an income adjusting event, then the licensee shall give written notice of this event to

the Authority.

15. An income adjusting event in relevant year t may arise from any of the following:

(a) an event or circumstance constituting force majeure under the STC;

(b) an event or circumstance resulting from an amendment to the STC not allowed for

when allowed transmission owner revenues of the licensee were determined for the

relevant year t; and

(c) an event or circumstance other than listed above which, in the opinion of the

Authority, is an income adjusting event and is approved by it as such in accordance

with paragraph 21 of this licence condition,

where the event or circumstance has, for relevant year t, increased or decreased costs

and/ or expenses by more than £[500,000/1,000,000] (the "STC threshold amount").

16. A notice provided to the Authority under paragraph 14 shall give particulars of:

(a) the event to which the notice relates and the reason(s) why the licensee considers

this event to be an income adjusting event;

49

(b) the amount of any change in costs and/or expenses that can be demonstrated by the

licensee to have been caused or saved by the event and how the amount of these

costs and/or expenses has been calculated;

(c) the amount of any allowed income adjustment proposed as a consequence of that

event and how this allowed income adjustment has been calculated; and

(d) any other analysis or information, which the licensee considers sufficient to enable

the Authority and the relevant parties to fully assess the event to which the notice

relates.

17. If the Authority considers that the analysis or information provided in sub-paragraphs

16(a) to 16 (d) (inclusive) above is insufficient to enable both the Authority and the

relevant parties to assess whether an income adjusting event has occurred and/or the

amount of any allowed income adjustment that should be approved, the Authority can

request that the supporting evidence be supplemented with additional information that it

considers appropriate. If the Authority requests that the supporting evidence be

supplemented with additional information, the licensee shall provide such information

to the Authority within not more than one month of the Authority requesting such

information.

18. A notice of an income adjusting event shall be given as soon as is reasonably

practicable after the occurrence of the income adjusting event, and, in any event, not

later than three months after the end of the relevant year in which it occurs.

19. The Authority will make public, excluding any confidential information, any notice of

an income adjusting event following its receipt.

20. Any notice submitted to the Authority under paragraph 14 above should clearly identify

whether any of the information contained in the notice is of a confidential nature. The

Authority shall make the final determination as to confidentiality having regard to:

(a) the need to exclude from disclosure, so far as is reasonably practicable, information

whose disclosure the Authority considers would or might seriously prejudicially

affect the interests of a person to which it relates; and

(b) the extent to which the disclosure of the information mentioned in sub-paragraph

20(a) is necessary for the purposes of enabling the relevant parties to fully assess

the event to which the notice relates.

21. The Authority shall determine (after consultation with the licensee and such other

persons as it considers desirable):

(a) whether any or all of the costs and/or expenses given in a notice pursuant to

paragraph 14 were caused or saved by an income adjusting event;

(b) whether the event or circumstance has increased or decreased the costs and/or

expenses given in the notice pursuant to paragraph 14 by more than the STC

threshold amount;

(c) if so, whether the amount of the proposed income adjustment ensures that the

financial position and performance of the licensee are, insofar as is reasonably

practicable, the same as if that income adjusting event had not taken place, and if

not, what allowed income adjustment would secure that effect; and

(d) the periods, if any, over which the amounts should apply.

22. In relation to the relevant year t, the allowed income adjustment (IATt) shall be:

50

(a) the value determined by the Authority under paragraph 21 above; or

(b) if the Authority has not requested additional information under paragraph 17 and

the Authority has not made a determination under paragraph 21 above within three

months of the date on which notice of an income adjusting event was provided to

the Authority, the amount of the allowed income adjustment proposed as a

consequence of the event in the notice given to the Authority under paragraph 14;

or

(c) if the Authority requests additional information under paragraph 17 and the

Authority has not made a determination under paragraph 21 above within three

months after receiving the additional information requested, the amount of the

allowed income adjustment proposed by the licensee in the notice given to the

Authority; or

(d) in all other cases the value zero, including situations where the Authority has not

made a determination under paragraph 21 above within three months of the date on

which notice of an income adjusting event, provided under paragraph 14, was

provided to the Authority, or within three months of the date on which the

Authority received additional information if requested under paragraph 17, and the

Authority has, before the end of the appropriate three month period, informed the

licensee that the Authority considers that the analysis or information provided in

accordance with paragraphs 16 and/or 17 is insufficient to enable the Authority to

assess whether an income adjusting event has occurred and/or the amount of any

allowed income adjustment.

23. The Authority’s decision in relation to any notice given under paragraph 14 shall be in

writing, shall be copied to the licensee and shall be in the public domain.

24. The Authority may revoke an approval of an income adjusting event and allowed

income adjustment with the consent of the licensee, following consultation with the

licensee and relevant parties, and any such revocation of any income adjusting event

and allowed income adjustment shall be in writing, shall be copied to the licensee and

shall be in the public domain.

Formula for the Temporary Physical Disconnection Term Payment(TPDt)

25. For the purposes of paragraph 2, TPDt shall be an amount equal to the interruption

payments made by the System Operator in the licensee's transmission system area and

charged by the System Operator to the transmission licensee in accordance with the

STC within each respective relevant year. Such costs shall include any financing or

other costs such as to ensure that the financial position and performance of the licensee

is, insofar as is reasonably practicable, the same as if those costs had not been incurred.

Formula for the Tender Fee Cost Adjustment Term (TCAt)

26. For the purposes of paragraph 2, TCAt shall be an amount representing the payments

made to the Authority in accordance with The Electricity (Competitive Tender for

Offshore Transmission Licences) Regulations 2010 with respect to the to the recovery

of the Authority’s tender costs. Where the payments have been made in relation to an

application for the grant of more than one licence, the licensee shall attribute an

appropriate proportion of the relevant payment made to the Authority.

Formula for the Marine and Coastal Act 2009 Cost Adjustment (MCAt)

27. Where the licensee considers, and can provide supporting evidence, that there will be

51

additional costs and/or expenses in relation to additional obligations imposed on the

licensee with respect to the introduction of the Marine and Coastal Access Act 2009

requirements then the licensee may give written notice of these changes to the

Authority.

28. A notice provided to the Authority under paragraph 27 shall give particulars of:

(a) the additional obligations to which the notice relates and the reason(s) why the

licensee considers that it will face additional costs or expenses in complying with

those additional obligations, and demonstrate that such costs or expenses are not

included within allowed transmission owner income;

(b) the expected amount of any change in costs and/or expenses that can be

demonstrated by the licensee to be caused by the introduction of those new

obligations under the Marine and Coastal Access Act 2009 and how the amount of

these costs and/or expenses has been calculated;

(c) the proposed amount of any allowed revenue adjustment proposed as a

consequence of the licensee incurring additional obligations in relation to the

Marine and Coastal Access Act 2009 requirements and how this allowed revenue

adjustment has been calculated; and

(d) any other analysis or information, which the licensee considers sufficient to enable

the Authority to fully assess the additional obligations to which the notice relates.

29. If the Authority considers that the analysis or information provided in sub-paragraphs

28(a) to (d) above is insufficient to enable the Authority to assess the amount of any

allowed income adjustment that might be approved, the Authority can request that the

supporting evidence be supplemented with any additional information that it considers

appropriate. If the Authority requests that the supporting evidence be supplemented

with additional information, the licensee shall provide such information to the

Authority within not more than one month of the Authority requesting such

information.

30. A notice referred to in paragraph 27 shall be given as soon as is reasonably practicable

after the new obligations imposed by the Marine and Coastal Access Act 2009 take

effect, and, in any event, not later than three months after the end of the relevant year in

which they occur.

31. The Authority shall determine:

(a) whether any or all of the costs and/or expenses given in a notice pursuant to

paragraph 27 were caused by the introduction of new obligations as a consequence

of the Marine and Coastal Access Act 2009 requirements and not already

incorporated within allowed transmission owner revenue;

(b) if so, whether the amount of the proposed income adjustment ensures that the

financial position and performance of the licensee are, insofar as is reasonably

practicable, the same as if that the additional obligations had not been

implemented, and if not, what allowed income adjustment would secure that effect;

and

(c) the periods, if any, over which the amounts should apply.

32. In relation to the relevant year t, the Marine and Coastal Act 2009 cost adjustment

(MCAt) shall be:

52

(a) the value determined by the Authority under paragraph 31 above; or

(b) if the Authority has not requested additional information under paragraph 29 and

the Authority has not made a determination under paragraph 31 above within three

months of the date on which notice given by the licensee was provided to the

Authority, the amount of the allowed income adjustment proposed by the licensee

in that notice given to the Authority; or

(c) if the Authority requests additional information under paragraph 29 and the

Authority has not made a determination under paragraph 31 above within three

months after receiving the additional information requested, the amount of the

allowed income adjustment proposed by the licensee in the notice given to the

Authority; or

(d) in all other cases the value zero, including situations where the Authority has not

made a determination under paragraph 31 above within three months of the date on

which notice given by the licensee provided to the Authority, or within three

months of the date on which the Authority received additional information if

requested under paragraph 29, and the Authority has, before the end of the

appropriate three month period, informed the licensee that the Authority considers

that the analysis or information provided in accordance with paragraphs 28 and/or

29 is insufficient to enable the Authority to assess whether additional costs or

expenses has occurred and/or the amount of any allowed income adjustment.

33. The Authority’s decision in relation to any notice given under paragraph 27 shall be in

writing, shall be copied to the licensee and shall be in the public domain.

53

Amended Standard Condition E12–J4: Restriction of Transmission Revenue: Annual

Revenue Adjustments

1. The purpose of this condition is to provide for adjustments to allowed transmission

revenue in relation to the licensee’s transmission system performance and this condition

shall not take effect until the transmission system to which this licence relates has been

transferred to the licensee.

2. For the purposes of paragraph 4 of amended standard condition E12– J2 (Restriction of

Transmission Revenue: Revenue from Transmission Owner Services), PAt is derived

from the following formula:

(10)

where:

AIt means the transmission system availability incentive, whether of a positive or

of a negative value, as derived from the formula set out in paragraph 6;

ICAt means the incremental capacity incentive adjustment term as derived from the

formula set out in paragraph 17.

Part A: Transmission System Availability Incentive

3. The licensee shall, in providing transmission owner services, use reasonable

endeavours to make its transmission system available to the System Operator in

accordance with standard condition E15 (Obligation to provide transmission services)

and Good Industry Practice to minimise the effect and duration of any transmission

service reduction.

4. Where a transmission service reduction applies to a part of the licensee’s transmission

system and the licensee reasonably expects that the duration of such a transmission

service reduction will apply for a period of more than 21 days then the licensee shall

within 7 days of the transmission service reduction occurring notify the Authority in

writing of the transmission service reduction including:

(a) details of the transmission service reduction on the transmission services the

licensee provides to the System Operator;

(b) the cause of the transmission service reduction and whether, in the licensee’s

opinion, the transmission service reduction has been caused (in whole or in part) by

an exceptional event;

(c) any interim work or other actions which are being undertaken to minimise the

effect of the transmission service reduction; and

(d) indicate the timescale in which the licence licensee reasonably considers that the

transmission service reduction will be resolved together with supporting

information that shall include (without limitation) any Service Restoration Proposal

agreed with the System Operator in accordance with the STC.

5. Where, in the incentive period y relevant year t, the total effect and duration of all

transmission service reductions, excluding those caused (in whole or in part) by an

exceptional event:

(a) results in transmission system availability being, on average, below 80 per cent in

that incentive period; or

(b) results in transmission system availability being, on average, below 85 per cent

54

when considering the 24 month period of the incentive period y and the incentive

period y-1;

then the licensee shall provide a written statement to the Authority, from an authorised

director of the licensee, within three months of the end of incentive period y, explaining

how the steps the licensee has taken have discharged the obligations in paragraph 3.

6. For the purposes of paragraph 2, the term AIt is derived from the following formula for

all relevant years:

(11)

where y = t

except in cases where asset transfer occurs between 1st January and 31

st March

(inclusive), where:

in relevant year t = 2 , AI2 = 0 ; and

(12)

in relevant year t = 23 it is derived from the following formula:

(13)

where:

BRt means base revenue calculated in accordance with the formula specified in

paragraph 4 of amended standard condition E12–J2 (Restriction of

Transmission Revenue: Revenue from Transmission Owner Services); and

PRt means the proportion of revenue calculated in accordance with the

formula specified in paragraph 4 of amended standard condition E12–J2

(Restriction of Transmission Revenue: Revenue from Transmission

Owner Services); and

AFy means the transmission system availability factor, which in any relevant

year before the commencement relevant year shall take the value zero and

in each subsequent relevant year is the revenue adjustment factor based on

the licensee’s performance against the transmission system availability

incentive during incentive period y. This converts percentage

unavailability to percentage revenue impact, and is derived from the

following formula:

(14)

where:

CCAPy means the annual credit availability cap. This is the maximum

unavailability in percentage terms of the system that can cause a

positive impact on the OFTO base revenue in any given year.

This is calculated for all incentive periods as:

55

(15)

where t = y

except in cases where asset transfer occurs between 1st January

and 31st March (inclusive), where in incentive period y=23 it is

derived from the following formula:

(16)

POy means the paid out unavailability. This is the total unavailability

in incentive period y that affects the revenue stream in relevant

year t and is calculated as:

(17)

where:

BFy means the brought forward unavailability which takes

the value of zero in the first year. In subsequent years,

it is calculated in accordance with the formula below

(18)

where:

CFy means the carried forward unavailability. This

is the total unavailability earned in previous

years but not yet paid out and is calculated as:

(19)

RCAP means the annual revenue impact cap. This is set at 10 per cent.

PCAPy means the annual penalty availability cap. This is the maximum

unavailability of the system below the target availability in

percentage point terms that can cause a negative impact on the

OFTO base revenue in any given year. This is calculated for all

incentive periods as

(20)

where t = y

except in cases where asset transfer occurs between 1st January

and 31st March (inclusive), where in incentive period y = 23 it is

derived from the following formula:

(21)

7. For the purposes of paragraph 6, the accrued unavailability (AUy) shall be calculated in

accordance with the following formula:

56

(22)

where:

TCAPy means the total unavailability cap in percentage terms. This is the total

annual unavailability that can affect the OFTO revenue stream over five

years. This is calculated as:

(23)

TUy means the total unavailability of the transmission system in year y in

percentage terms and is calculated as:

(24)

where:

MAy is the maximum weighted annual availability in MWh and is

calculated as:

(25)

where:

TCi,y means the maximum transmission system

availability in month i that is required to be

delivered being the minimum of:

(i) the aggregate Transmission Entry Capacity; and

(ii) the maximum system availability in month i

that is capable of being delivered by the

licensee by providing transmission services to

the Normal Capability Limits;

both expressed as number of MWh that could be

achieved if the available capacity were fully

utilised.

Wi,y is the monthly weighting term, expressed in

percentage terms, the monthly values of which are

given as performance incentive parameters in

Annex A of Amended Standard Condition E12–AJ4

(Restriction of Transmission Revenue: Annual

Revenue Adjustments)

WUy means the weighted annual unavailability expressed in MWh

and is calculated as:

(26)

where:

MWUi,y means the monthly weighted unavailability and is

calculated as:

(27)

57

where:

RUi,y is the reported unavailability in MWh

which is calculated as

(28)

where:

RSIPi,y means the reported system incentive

performance (expressed as the number of

MWh the system was capable of

delivering) in respect of month i in

incentive period y derived in accordance

with paragraph 8 to 12.

8. For the purposes of this amended standard condition "reported system incentive

performance (RSIPi,y)" shall mean, in month i of incentive period y, the extent to which

the licensee made transmission services available to the System Operator for the

purposes of conveying, or affecting the flow of, electricity and reported system

incentive performance (RSIPi,y) shall be calculated as the maximum transmission

system availability in month i (TCi,y) less the effect, also in month i, of any

transmission service reduction that applied to licensee’s transmission system, subject to

the following exclusions:

(a) any reduction in transmission system availability resulting from a de-energisation

or disconnection of a user’s equipment under an event of default as defined in the

CUSC;

(b) any reduction in transmission system availability resulting from a user’s request for

disconnection in accordance with the Grid Code;

(c) any reduction in transmission system availability resulting from emergency de-

energisation by a user as defined in the CUSC; and

(d) any reduction in transmission system availability resulting from an emergency de-

energisation or disconnection of a user’s equipment necessary to ensure

compliance with the Electricity Safety, Quality and Continuity Regulations 2002,

as amended from time to time, or to otherwise ensure public safety.

9. The Authority shall, by written notice to the licensee, direct that, for the purpose of

calculating the reported system incentive performance (RSIPi,y) that the value of

reported system incentive performance (RSIPi,y) shall be adjusted to the extent

specified in that direction to offset the impact of the exceptional event, where:

(a) the licensee considers that any event on the licensee’s transmission system that

causes a transmission service reduction has been wholly or partially caused by an

exceptional event;

(b) the licensee has notified the Authority of such an event within 14 days of its

occurrence;

(c) the licensee has provided details of the reduction in system availability that the

licensee considers resulted from the exceptional event (including the anticipated

duration of any reduction in availability) and such further information, if any, as

58

the Authority may require in relation to such an exceptional event; and

(d) the Authority is satisfied that the event notified to it under sub-paragraph (b) is an

exceptional event

10. For the purpose of paragraph 9, the adjustment directed by the Authority shall be based

on the extent to which the Authority is satisfied that the licensee had taken reasonable

steps, consistent with Good Industry Practice, to manage the impact of the event on the

availability of services provided to the System Operator in accordance with standard

condition E15 (Obligation to provide transmission services) (both in anticipation of the

event and after the event has occurred).

11. A direction under paragraph 9 shall not have effect unless, before it is made, the

Authority has given notice to the licensee:

(a) setting out the terms of the proposed direction, including the extent to which the

value of reported system availability performance for month i, and each subsequent

month, should be increased to offset the impact of the exceptional event;

(b) stating the reasons, having regard to the information provided by the licensee and

Good Industry Practice, why it proposes to issue the direction; and

(c) specifying the period (not being less than 14 days from the date of the notice)

within which the licensee may make representations or objections

and the Authority has considered such representations or objections and given reasons

for its decision.

12. The licensee may request that a direction issued by the Authority pursuant to paragraph

9 be modified, where the licensee considers that:

(a) there has been a material change to the information previously provided by the

licensee in relation to the exceptional event specified in the previous direction; and

(b) it has notified the Authority of the material change, no later than 3 months after the

end of the incentive period to which it relates.

Part B: Transmission System Availability Incentive: Supplementary Provisions

13. The licensee shall, by no later than 14 days after the end of each three month period

(being the three months ending either 31 March, 30 June, 30 September and 31

December), submit to the Authority a report setting out the reported system incentive

performance (RSIPi,y) for each of the months within the three month period and the

report should include the calculation of RSIPi,y and provide a commentary in relation to

those months where reported system incentive performance (RSIPi,y) has fallen below

the monthly incentive target (TA x TC) (Target Availability x TCi,y).

14. The licensee shall, by no later than sixteen years after this condition comes into force,

procure, to the satisfaction of the Authority, financial security for the purposes of

covering future financial liabilities up to and including the closing relevant year.

15. For the purposes of paragraph 14, the licensee shall, by no later than 3 months before

the date that is sixteen years after this condition comes into force, provide to the

Authority a notice specifying:

(a) the amount of financial security that the licensee intends to procure, being no less

than 50 per cent of base transmission revenue;

(b) the form of the financial security that the licensee intends to procure;

59

(c) the independent financial institution with which the financial security is to be

lodged; and

(d) the detailed terms on which the security can be called upon to meet the financial

liabilities payments that have been incurred by the licensee in respect of the

Transmission System Availability Incentive.

16. The Authority shall, within 2 months of receiving the notice specified in paragraph 15,

indicate to the licensee whether the proposed arrangements for financial security (as

specified in the notice) would be satisfactory. In the event that the Authority considers

that the financial security arrangements proposed by the licensee are not satisfactory,

the Authority shall set out in writing to the licensee the reasons why the proposed

financial security arrangements are not satisfactory and those areas where modifications

would be required. The Authority shall also set out the timescales within which the

licensee is required to provide its amended proposal.

Part C: Incremental Capacity Incentive Adjustment

17. For the purposes of paragraph 2, the incremental capacity incentive adjustment term

(ICAt) is derived from the following formula:

(29)

where:

ICUAt means the incremental capacity utilisation adjustment, as derived from the

formula set out in paragraph 18; and

ACAt means the additional capacity investment adjustment, which for the purposes

of this licence shall take the value zero, but may be changed as derived in

accordance with paragraph 19.

RITt means the revenue indexation adjustment term calculated in accordance with

the formula specified in paragraph 4 of amended standard condition E12–J2

(Restriction of Transmission Revenue: Revenue from Transmission Owner

Services).

18. For the purposes of paragraph 17, the incremental capacity utilisation adjustment term

(ICUAt) shall be derived in accordance with the following formula:

(30)

where:

ICRDt means the incremental capacity revenue driver (in £/kW) and shall take

the value as defined by the formula:

(31)

where:

CCR means the composite circuit rating based on the thermal rating

of the offshore transmission cable circuit and shall take the

value [xx] kVA kW.

PF means the power factor (kW to kVA ratio) associated with the

60

offshore transmission cable circuit and shall take the value of

0.95.

RCF means the risk compensation factor and shall take the value

0.31.

ICUt means the incremental capacity utilisation term (expressed in kW)

representing the amount of capacity that the licensee has agreed to

make and has made available to the System Operator in accordance

with standard condition E17.

19. For the purposes of paragraph 17, the additional capacity investment adjustment term

(ACAt) shall be determined by the Authority in accordance with paragraphs 20 to 22

and shall otherwise take the value zero.

20. Where the licensee has entered into an agreement with the System Operator in

accordance with standard condition E17 (Obligations in relation to offers for

connection etc) to provide additional capacity it shall:

(a) submit a notice in writing to the Authority, together with supporting evidence,

setting out the revenue adjustment that it considers is required to remunerate the

costs that it will incur in providing that additional capacity, which shall include

(without limitation):

(i) the amount of additional capacity that the licensee is contractually required to

make available to the System Operator;

(ii) the capital costs that it expects to incur in providing the additional capacity,

demonstrating that such costs are not more than 20 per cent of the original

investment cost incurred by the licensee in respect of the licensee’s

transmission system in the commencement relevant year;

(iii) the anticipated additional costs of operation and maintenance that are

expected to be incurred as a consequence of providing the additional capacity;

and

(iv) the costs of financing the additional investment in the licensee’s transmission

system.

(b) provide such additional information as the Authority may require to make a

determination of the appropriate revenue adjustment in accordance with paragraph

22.

21. A notice referred to in paragraph 20 shall be given as soon as is reasonably practicable

after the licensee has entered an agreement with the System Operator in accordance

with standard condition E17 (Obligations in relation to offers for connection etc), and,

in any event, not later than three months after the end of the relevant year in which it

occurs.

22. The Authority shall determine:

(a) the revenue adjustment (ACAt) that would be required to remunerate the efficient

costs that the Authority considers to have been reasonably incurred by the licensee;

(b) the relevant year from which the adjustment shall apply.

23. For the purposes of paragraph 22, in determining an appropriate adjustment:

(a) the Authority may request that the licensee provide such information that it

61

reasonably requires for the purposes of making its determination. The licensee is

required to provide such information within the timescales set out by the Authority;

(b) the Authority shall, following consultation with interested parties, notify the

licensee in writing of its proposed determination of the adjustment to allowed

transmission owner revenue (ACAt);

(c) the licensee, shall have 28 days within which to make representations to the

Authority’s proposed determination that has been notified to it pursuant to sub-

paragraph (b);

(d) the Authority, having regard to any representations made by the licensee and not

withdrawn, shall propose a modification to the ACAt pursuant to sections 11A to

11F and 11B of the Act. The proposed modification shall only take effect where

made by the Authority and in accordance with sections 11A to 11F and 11B of the

Act.

24. In this condition:

"financial security" means a deposit of money, a performance

bond or bank guarantee, an insurance policy

or a letter of credit.

"Good Industry Practice" means in relation to any undertaking and

any circumstances, the exercise of that

degree of skill, diligence, prudence and

foresight which would reasonably and

ordinarily be expected from a skilled and

experienced operator engaged in the same

type of undertaking under the same or

similar circumstances.

"normal capability limits" means the technical limits that would

normally apply to the provision of its

transmission services in accordance with the

STC as at the date this condition comes into

force.

62

"service restoration proposal" means a transmission owner’s proposal, in

accordance with the STC as at the date this

condition comes into force, in reasonable

but not excessive detail for, as appropriate:

(a) any interim works or other actions

which are able to be undertaken by

such transmission owner to minimise

the effect of the services reduction or

services reduction risk and

including, where relevant, any

revised operational capability limits

that would apply during the period of

such services reduction or services

reduction risk;

(b) restoring the transmission services

such that they are provided in

accordance with their services

capability specification (and to their

normal capability limits); and

(c) otherwise removing, mitigating or

dealing with a services reduction

risk,

including, in the case of sub-paragraphs (b)

and (c), where necessary and appropriate, by

proposing to amend the content of its

services capability specification (including

any normal capability limits).

"Transmission Entry Capacity" means the figure specified as such for a

connection site in a transmission owner

construction agreement in accordance with

the STC as at the date this condition comes

into force.

63

ANNEX A to Amended Standard Condition E12–J4 (Restriction of Transmission

Revenue: Annual Revenue Adjustments)

Performance incentive parameters

1. For the purposes of paragraph 7, the performance incentive parameters are set out in the

table below:

Month i Jan(i=1) Feb (i=2) Mar (i=3) Apr (i=4) May (i=5) Jun (i=6)

Wi,y

Month i Jul (i=7) Aug (i=8) Sept (i=9) Oct (i=10) Nov (i=11) Dec (i=12)

Wi,y

64

Amended Standard Condition E12–J5: Restriction of Transmission chargesRevenue:

Adjustments

1. If, in respect of any relevant year t, the regulated transmission revenue (ARt) exceeds

the allowed transmission owner revenue (OFTOt) by 3 per cent of the latter, the

licensee shall provide furnish a written explanation to the Authority and in the next

following relevant year the licensee shall not affect any increase in charges for the

provision of transmission services, the revenue from which is regulated under amended

standard condition E12–J2 (Restriction of Transmission Revenue: Revenue from

Transmission Owner Services), unless it has demonstrated to the reasonable satisfaction

of the Authority that the regulated transmission revenue in that next following relevant

year would not be likely to exceed the allowed transmission owner revenue in that same

relevant year.

2. If, in respect of any two successive relevant years, the sum of the amounts by which the

regulated transmission revenue (ARt) has exceeded the allowed transmission owner

revenue (OFTOt) is 4 per cent of the allowed transmission owner revenue (OFTOt),

then:

(a) the licensee shall provide furnish a written explanation to the Authority; and

(b) in the next following relevant year the licensee shall, if required by the Authority,

adjust its charges for the provision of transmission services, the revenue from

which is regulated under the amended standard condition E12–J2 (Restriction of

Transmission Revenue: Revenue from Transmission Owner Services), such that

the regulated transmission revenue (ARt) would not be likely, in the judgment of

the Authority, to exceed the allowed transmission owner revenue in that next

following relevant year.

3. If, in respect of any relevant year, the licensee fails to collect collects less than 97 per

cent of the allowed transmission owner revenue (OFTOt) by more than 3 per cent of the

latter, the licensee shall provide furnish a written explanation to the Authority.

65

Amended Standard Condition E12 –J6: Provision of Information to the System

Operator

1. In the commencement relevant year, the licensee shall, as soon as reasonably

practicable,

(a) notify the System Operator of its best estimate for the value of OFTOt in respect of

the commencement relevant year; and

(b) notify the System Operator of its best estimate for the value of OFTOt+1;

where:

OFTOt means the allowed transmission owner revenue in the relevant year t

calculated in accordance with amended standard condition E12–J2 (Restriction

of Transmission Revenue: Revenue from Transmission Owner Services).

2. In each relevant year subsequent to the commencement relevant year, the licensee shall,

on or before 1 November (or such later date as the Authority may direct),

(a) notify the System Operator of its latest best estimate for the value of OFTOt; and

(b) notify the System Operator of its latest best estimate for the value of OFTOt+1.

3. The licensee shall keep, at all times, keep under review the estimates notified to the

System Operator pursuant to paragraphs 1 or 2. If at any time, the licensee reasonably

considers that the values of OFTOt and/or OFTOt+1, notified to the System Operator

will be significantly different from the estimates previously notified to the System

Operator, the licensee shall notify the System Operator of the revised values for OFTOt

and/or OFTOt+1 as soon as reasonably practicable.

4. In each relevant year subsequent to the commencement relevant year, the licensee shall,

by 30 June (or such later date as the Authority may direct), provide a statement to the

Authority showing:

(a) the values of OFTOt and OFTOt+1 notified to the System Operator in accordance

with paragraph 1 or paragraph 2 of this condition in the relevant year t-1; and

(b) any revised values of OFTOt and OFTOt+1 notified to the System Operator in

accordance with paragraph 3 of this condition in the relevant year t-1.

66

Amended Standard Condition E12–J7: Duration of the Revenue Restriction Provisions

1. The charge restriction conditions shall apply so long as this licence continues in force

but shall cease to have effect (in whole or in part, as the case may be) if the licensee

delivers to the Authority a disapplication request made in accordance with paragraph 2

and:

(a) the Authority agrees in writing to the disapplication request; or

(b) the application of those conditions (in whole or in part) is terminated by notice

given by the licensee in accordance with either paragraph 4 or paragraph 5.

2. A disapplication request pursuant to this condition shall:

(a) be in writing addressed to the Authority;

(b) specify those of the charge restriction conditions (or any part or parts thereof) to

which the request relates; and

(c) state the date (not being earlier than the date specified in paragraph 3) from which

the licensee wishes the Authority to agree that the specified charge restriction

conditions shall cease to have effect ("the disapplication date").

3. Save where the Authority agrees otherwise, no disapplication following delivery of a

disapplication request pursuant to this condition shall have effect earlier than the date

which is the later of:

(a) a date being not less than 12 months after delivery of the disapplication request;

and

(b) the closing date, being not less than 20 calendar years after the date of grant of this

offshore transmission licence.

4. If the Authority has not made a reference to the Competition Commission under

Section 12 of the Act relating to the modification of the charge restriction conditions

before the beginning of the period of 6 months which will end with the disapplication

date, the licensee may deliver written notice to the Authority terminating the

application of such of the charge restriction conditions (or any part or parts thereof) as

are specified in the disapplication request with effect from the disapplication date or a

later date.

5. If the Competition Commission makes a report on a reference made by the Authority

relating to the modification of the revenue restriction (or any part or parts thereof)

specified in the disapplication request and such report does not include a conclusion

that:

(a) the cessation of such revenue restriction, in whole or in part, operates or may be

expected to operate against the public interest; or

(b) that any adverse effects specified by the Competition Commission could be

remedied or prevented by such modifications of the relevant conditions as are

specified in the report;

the licensee may, within 30 days after the publication of the report by the Authority in

accordance with Section 13 of the Act, deliver to it written notice terminating the

application of such revenue restriction (or any part or parts thereof) with effect from the

disapplication date or a later date.

67

Amended Standard Condition E12–J8: Allowances in respect of Security Costs

1. At any time during a security period, the licensee may give notice in writing to the

Authority suspending, with effect from the date of receipt of the notice by the

Authority, application of such of the charge restriction conditions as may be specified

in the notice, for the unexpired term of the security period.

2. At any time during a security period, the Authority may (having regard to its duties

under the Act) by means of directions:

(a) suspend or modify for the unexpired term of the security period the charge

restriction conditions or any part or parts thereof; or

(b) introduce for the unexpired term of the security period new charge restriction

conditions;

in either case, so as to make such provision as in the opinion or estimation of the

Authority is requisite or appropriate to enable the licensee to recover by means of a

uniform percentage increase on all charges made in the course of the licence an amount

estimated as being equal to the licensee’s allowed security costs during such period,

and the licensee shall comply with the terms of any directions so issued.

3. Subject to paragraphs 4 and 6, the licensee shall in any relevant year be entitled to

recover an aggregate amount equal to the licensee’s allowed security costs in that year

or (in so far as not previously recovered) any previous year, by means of appropriate

equitable increases in the charges made by the licensee in the course of the transmission

business.

4. Paragraph 3 shall not apply in so far as such licensee’s allowed transmission related

security costs:

(a) were otherwise recovered by the licensee; or

(b) were taken into account by the Authority in setting the charge restriction conditions

by means of directions issued under paragraph 2.

5. The licensee shall following the end of each relevant year provide to the Authority

details in respect of that relevant year of:

(a) the aggregate amounts charged under paragraph 3 on account of the licensee’s

allowed security costs; and

(b) the basis and calculation underlying the increases in charges made by the licensee

in the course of the transmission business.

6. Where the Authority is satisfied that the licensee has recovered amounts in excess of

the licensee’s allowed security costs, the Authority may issue directions requiring the

licensee to take such steps as may be specified to reimburse customers of the licensee

for the excess amounts charged to them, and the licensee shall comply with any

directions so issued.

7. No amounts charged by the licensee under this condition (whether or not subsequently

required to be reimbursed) shall be taken into account for the purpose of applying the

charge restriction provisions of amended standard condition E12–J2 C2 (Restriction of

Transmission Revenue: Revenue from Transmission Owner Services).

68

8. In this condition:

"allowed security cost" means any cost allowed by the Authority

(upon receipt of such information, including

a certificate from the auditors, as the

Authority may request) as being a cost

which is directly attributable to any action

taken or omitted to be taken by the licensee

in its capacity as holder of the licence for the

purpose of complying with directions issued

by the Secretary of State under section 34(4)

of the Act.

"security period" means a period commencing on the date on

which any direction issued by the Secretary

of State under section 34(4) of the Act enters

effect and terminating on the date (being not

earlier than the date such direction, as

varied, is revoked or expires) as the

Authority, after consultation with such

persons (including without limitation,

licence holders liable to be principally

affected) as it shall consider appropriate,

may with the consent of the Secretary of

State by notice to all licence holders

determine after having regard to the views

of such persons.

69

Amended Standard Condition E12–J9: Basis of Transmission Owner Charges

1. The licensee shall as soon as practicable during the commencement relevant year and,

in any event, not later than such date as the Authority shall specify, prepare a statement

approved by the Authority setting out the basis upon which charges will be made:

(a) for transmission owner services;

(b) for connection to the licensee's transmission system, such statement to be in such

form and to contain such detail as shall be necessary to enable the System Operator

to make a reasonable estimate of the charges to which it would become liable for

the provision of such services, and (without prejudice to the foregoing) including

such of the information set out in paragraph 2 as is required by such paragraph to

be included in the relevant statement; and

(c) for outage changes.

2. The statement referred to in paragraph 1 shall in respect of connections to the licensee's

transmission system include:

(a) a schedule listing those items (including the carrying out of works and the

provision and installation of electric lines or electrical plant or meters) of

significant cost liable to be required for the purpose of connection (at entry or exit

points) to the licensee's transmission system for which site specific charges may be

made or levied and including (where practicable) indicative charges for each such

item and (in other cases) an explanation of the methods by which and the principles

on which such charges will be calculated;

(b) the methods by which and the principles on which site specific charges will be

made in circumstances where the electric lines or electrical plant to be installed are

(at the licensee's discretion) of greater size or capacity than that required;

(c) the methods by which and the principles on which any charges (including any

capitalised charge) will be made for maintenance, replacement and repair required

of electric lines, electrical plant or meters provided and installed for making a

connection to the licensee's transmission system;

(d) the methods by which and the principles on which any charges will be made for

disconnection from the licensee's transmission system and the removal of electrical

plant, electric lines and ancillary meters following disconnection; and

(e) such other matters as shall be specified in directions issued by the Authority from

time to time for the purpose of this condition.

3. Site specific charges for those items referred to in paragraph 2 shall be set at a level

which will enable the licensee to recover:

(a) the appropriate proportion of the costs directly or indirectly incurred in carrying

out any works, the extension or reinforcement of the licensee's transmission system

or the provision and installation, maintenance, replacement and repair or (as the

case may be) removal following disconnection of any electric lines, electrical plant,

meters or other items; and

(b) a reasonable rate of return on the capital represented by such costs.

4. In addition to, and without prejudice to, the licensee's obligations under paragraph 1,

the licensee shall, upon being directed to do so in directions issued by the Authority

from time to time for the purposes of this condition and within such period as shall be

70

specified in the directions, prepare a statement or statements approved by the Authority

providing that charges:

(a) for transmission owner services;

(b) for connection to the licensee's transmission system; and

(c) for outage changes

will be made on such basis as shall be specified in the directions and such statement or

statements shall be in such form and contain such detail as shall be necessary to enable

the System Operator to make a reasonable estimate of the charges to which it would

become liable for the provision of such services and (without prejudice to the

foregoing) including such information as shall be specified in the directions. Each

statement prepared in accordance with this paragraph shall, with effect from the date on

which it is approved by the Authority or such later date as the Authority shall specify,

replace the corresponding statement prepared by the licensee in accordance with

paragraph 1 or, as the case may be, this paragraph (as from time to time revised in

accordance with paragraph 5) which is in force at such date and the licensee shall, with

effect from such date make charges in accordance with the statement (as from time to

time revised in accordance with paragraph 5) which has replaced such corresponding

statement.

5. The licensee may periodically revise the statements in accordance with paragraphs 1

and 4 and shall, at least once in every year this licence is in force, make any necessary

revisions to such statements in order that the information set out in the statements shall

continue to be accurate in all material respects.

6. The licensee shall send a copy of the statements prepared in accordance with

paragraphs 1 and 4, and of each revision of such statements in accordance with

paragraph 5, to the Authority. Each such revision shall require to be approved by the

Authority and shall not become effective until approved by the Authority.

7. The licensee shall give or send a copy of the statements prepared in accordance with

paragraphs 1 and 4 or (as the case may be) of the latest revision of such statements in

accordance with paragraph 5 approved by the Authority pursuant to such paragraphs to

any person who requests a copy of such statement or statements.

8. The licensee may make a charge for any statement given or sent pursuant to paragraph

7 of an amount reflecting the licensee's reasonable costs of providing such a statement

which shall not exceed the maximum amount specified in any directions issued by the

Authority for the purposes of this condition.

71

Amended Standard Condition E12–J10: Excluded Services

1. There may be treated as excluded services provided by the licensee in its transmission

business such services in respect of which charges are made:

(a) which fall within paragraph 6; or

(b) which:

(i) do not fall within paragraph 2 of this amended standard condition; and

(ii) may (subject to paragraph 7) be determined by the licensee as falling under

one of the principles set out in paragraphs 3 to 5 of this amended standard

condition.

2. No service provided by the licensee as part of its transmission business shall be treated

as an excluded service in so far as it relates to the provision of services remunerated

under charges for transmission owner services in accordance with amended standard

condition E12–J9 (Basis of Transmission Owner Charges) including (without prejudice

to the foregoing):

(a) the making available of transmission owner services;

(b) the carrying out of works for the installation of electric lines or electrical plant for

the purpose of maintaining or upgrading the licensee’s transmission system (not

otherwise payable in respect of connections to the licensee’s transmission system);

(c) the carrying out of works or the provision of maintenance or repair in relation to

the licensee’s transmission system for the purpose of enabling the licensee to

comply with amended standard condition E13 (System Operator – Transmission

Owner Code) and standard condition E16 (Transmission system security standard

and quality of service), the Electricity Safety, Quality and Continuity Regulations

2002 or any regulations made under section 29 of the Act or any other enactment

relating to safety or standards applicable in respect of the transmission business;

and

(d) the provision, installation and maintenance of any meters, switchgear or other

electrical plant ancillary to the licensee’s provision of transmission owner services.

3. The whole or an appropriate proportion (as the case may be) of the charges of the type

described in amended standard condition E12–J9 (Basis of Transmission Owner

Charges) and borne by any person as connection charges in respect of connections

made after the grant of this licence and not remunerated as part of the transmission

owner services under amended standard condition E12–J2 (Restriction of Transmission

chargesRevenue: Revenue from Transmission Owner Services) may be treated as

excluded services.

4. There may be treated as an excluded service charge for the relocation of electric lines or

electrical plant and the carrying out of works associated therewith pursuant to a

statutory obligation (other than under section 9(2) of the Act) imposed on the licensee.

5. There may with the approval of the Authority be treated as an excluded service any

service of a type not above referred to which:

(a) consists in the provision of services for the specific benefit of a third party

requesting the same; and

(b) is not made available by the licensee as a normal part of the transmission business

72

remunerated under amended standard condition E12–J2 (Restriction of

Transmission chargesRevenue: Revenue from Transmission Owner Services).

6. Services may be regarded as excluded services where the charges are the net costs

reasonably incurred by the licensee as a result of any outage change.

7. Where the Authority is satisfied that in light of the principles set out in paragraphs 3 to

6 inclusive any service treated by the licensee as an excluded service should not be so

treated, the Authority shall issue directions to that effect, and such service shall cease to

be treated as an excluded service with effect from the date of issue of such directions or

such earlier date as may be specified in the directions (being not earlier than the

commencement of the relevant year to which the information relating to excluded

services last furnished pursuant to the offshore regulatory reporting - regulatory

instructions and guidance directed by the Authority pursuant to amended standard

condition E12–D1 (Offshore Regulatory Reporting) related, unless such information, or

any such information provided earlier, was incorrect or misleading in any material

respect, as may be specified in the directions).

8. Any revenues received by the licensee from the System Operator in respect of a non-

chargeable outage change shall not be regarded as excluded service revenues under this

condition.

9. The charges referred to in paragraph 6 shall be those declared to the System Operator

by the licensee and which are agreed by the System Operator, or where there is a failure

to agree, as determined by the Authority following the provision by the licensee of such

information as the Authority may reasonably request.

10. In this condition:

"non-chargeable outage change" means a change to the outage plan notified

by the System Operator which the licensee

and the System Operator agree.

"original change" means a change to the outage plan requested

by the licensee.

73

"outage change" means a change notified to the licensee by

the System Operator on or after week 49 of

the calendar year to the outage plan, as

updated from time to time in accordance

with the STC as at the date this condition

comes into force, other than:

(a) the original change, and

(b) such changes notified to the

licensee by the System Operator

which:

(i) the licensee and the System

Operator agree are

necessary in order to give

effect to the original

change, or

(ii) where there is a failure to

agree, the Authority

determines are necessary in

order to give effect to the

original change; and

(c) without prejudice to sub-

paragraphs (a) and (b) above, a

non-chargeable outage change.

"outage plan" means the plan for the placement of outages

for each financial year developed and

maintained by System Operator in

accordance with the STC as at the date this

condition comes into force.

74

Condition E13: System Operator – Transmission Owner Code

Insert text below after paragraph 4

5. Where the Authority issues a direction under this paragraph, any reference to a special

condition in the STC or the STC Framework Agreement shall have such effect in

relation to this licence as if "Amended Standard Condition" were construed as "Special

Condition" as set out below:

Amended Standard Condition reference STC reference

Amended Standard Condition E12–A1:

Definitions and Interpretation

Special Condition A1: Definitions and

Interpretation

Amended Standard Condition E12–A2:

Market Rate Revenue Adjustment

Special Condition A2 A3: Debt Market Rate

Revenue Adjustment

Amended Standard Condition E12–A3: Post

Tender Revenue Adjustment

Special Condition A3 A2: Post Tender

Revenue Adjustment

Amended Standard Condition E12–B1:

Transmission System Area

Special Condition B1: Transmission System

Area

Amended Standard Condition E12–B2:

Activities Restrictions

Special Condition B2: Activities

Restrictions

Amended Standard Condition E12–C1:

Conduct of Transmission Business

Special Condition C1: Conduct of

Transmission Business

Amended Standard Condition E12–C2:

Separation and Independence of the

Transmission Businesses

Special Condition C2: Separation and

Independence of the Transmission

Businesses

Amended Standard Condition E12–C3:

Restriction on use of certain information

Special Condition C3: Restriction on use of

certain information

Amended Standard Condition E12–C4:

Appointment of Compliance Officer

Special Condition C4: Appointment of

Compliance Officer

Amended Standard Condition E12–D1:

Offshore Regulatory Reporting

Special Condition D1: Offshore Regulatory

Reporting

Amended Standard Condition E12–J1:

Restriction of Transmission Revenue:

Definitions

Special Condition J1: Restriction of

Transmission Revenue: Definitions

Amended Standard Condition E12–J2:

Restriction of Transmission Revenue:

Revenue from Transmission Owner Services

Special Condition J2: Restriction of

Transmission Revenue: Revenue from

Transmission Owner Services

Amended Standard Condition E12–J3:

Restriction of Transmission Revenue:

Allowed Pass-through Items

Special Condition J3: Restriction of

Transmission Revenue: Allowed Pass-

through Items

Amended Standard Condition E12–J4:

Restriction of Transmission Revenue:

Annual Revenue Adjustment

Special Condition J4: Restriction of

Transmission Revenue: Annual Revenue

Adjustment

75

Amended Standard Condition E12–J5:

Restriction of Transmission Revenue:

Adjustments

Special Condition J5: Restriction of

Transmission Revenue: Adjustments

Amended Standard Condition E12–J6:

Provision of Information to the System

Operator

Special Condition J6: Provision of

Information to the System Operator

Amended Standard Condition E12–J7:

Duration of the Revenue Restriction

Provisions

Special Condition J7: Duration of the

Revenue Restriction Provisions

Amended Standard Condition E12–J8:

Allowances in respect of Security Costs

Special Condition J8: Allowances in respect

of Security Costs

Amended Standard Condition E12– J9:

Basis of Transmission Owner Charges

Special Condition J9: Basis of Transmission

Owner Charges

Amended Standard Condition E12–J10:

Excluded Services

Special Condition J10: Excluded Services

6. For the purposes of Section E of this licence:

"STC" means the system operator transmission

owner code, being a document which sets

out terms as between STC parties whereby

the national electricity transmission system

and each STC party's transmission system

forming part thereof is to be planned,

developed or operated and transmission

services are to be provided together with any

associated arrangements.

76

PART IV. SPECIAL CONDITIONS

There are no Special Conditions.

77

Schedule 1: Specified Area

Great Britain, an area of waters in or adjacent to Great Britain which is between the mean low

water mark and the seaward limits of the territorial sea, and an area of waters within an area

designated under section 1(7) of the Continental Shelf Act 1964 and in any Renewable

Energy Zone.

where:

Renewable Energy Zone means an area designated by Order in Council under section

84(4) of the Energy Act 2004.

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Schedule 2: Revocation

1. The Authority may at any time revoke the licence by giving not less than 30 days’

notice (24 hours' notice, in the case of a revocation under sub-paragraph 1(f)) in writing

to the licensee:

(a) if the licensee agrees in writing with the Authority that the licence should be

revoked;

(b) if any amount payable under Standard Condition A4 (Payments by Licensee to the

Authority) is unpaid 30 days after it has become due and remains unpaid for a

period of 14 days after the Authority has given the licensee notice that the payment

is overdue - provided that no such notice shall be given earlier than the sixteenth

after the day on which the amount payable became due;

(c) if the licensee fails:

(i) to comply with a final order (within the meaning of section 25 of the Act) or

with a provisional order (within the meaning of that section) which has been

confirmed under that section and (in either case) such failure is not rectified to

the satisfaction of the Authority within three months after the Authority has

given notice of such failure to the licensee - provided that no such notice shall

be given by the Authority before the expiration of the period within which an

application under section 27 of the Act could be made questioning the validity

of the final or provisional order or before the proceedings relating to any such

application are finally determined; or

(ii) to pay any financial penalty (within the meaning of section 27A of the Act) by

the due date for such payment and such payment is not made to the Authority

within three months after the Authority has given notice of such failure to the

licensee - provided that no such notice shall be given by the Authority before

the expiration of the period within which an application under section 27E of

the Act could be made questioning the validity or effect of the financial

penalty or before the proceedings relating to any such application are finally

determined;

(d) if the licensee fails to comply with:

(i) an order made by the court under section 34 of the Competition Act 1998;

(ii) an order made by the Authority under sections 158 or 160 of the Enterprise

Act 2002;

(iii) an order made by the Competition Commission under sections 76, 81, 83, 84

and 161 of the Enterprise Act 2002;

(iv) an order made by the Secretary of State under sections 66, 147, 160 or 161 of

the Enterprise Act 2002;

(e) if the licensee:

(i) has ceased to carry on the transmission business;

(ii) has not commenced carrying on the transmission business within 3 years of the

date on which the licence comes into force;

(iii) has not been certified by the Authority in accordance with section 10D of the

Act as complying with the requirement of the section 10A of the Act; or

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(iv) has not continued to be certified by the Authority in accordance with section

10I and section 10L of the Act as complying with the requirement of section

10A of the Act.

(f) if the licensee:

(i) is unable to pay its debts (within the meaning of section 123(1) or (2) of the

Insolvency Act 1986, but subject to paragraphs 2 and 3 of this schedule) or has

any voluntary arrangement proposed in relation to it under section 1 of that

Act or enters into any scheme of arrangement (other than for the purpose of

reconstruction or amalgamation upon terms and within such period as may

previously have been approved in writing by the Authority);

(ii) has a receiver (which expression shall include an administrative receiver

within the meaning of section 251 of the Insolvency Act 1986) of the whole or

any material part of its assets or undertaking appointed;

(iii) has an administration order under section 8 of the Insolvency Act 1989 made

in relation to it;

(iv) passes any resolution for winding-up other than a resolution previously

approved in writing by the Authority; or

(v) becomes subject to an order for winding-up by a court of competent

jurisdiction.

2. For the purposes of sub-paragraph 1(f)(i), section 123(1)(a) of the Insolvency Act 1989

shall have effect as if for "£750" there was substituted "£250,000" or such higher figure

as the Authority may from time to time determine by notice in writing to the licensee.

3. The licensee shall not be deemed to be unable to pay its debts for the purposes of sub-

paragraph 1(f)(i) if any such demand as is mentioned in section 123(1)(a) of the

Insolvency Act 1989 is being contested in good faith by the licensee with recourse to all

appropriate measures and procedures or if any such demand is satisfied before the

expiration of such period as may be stated in any notice given by the Authority under

paragraph 1.

4. The Authority may at any time revoke the licence by giving no less than 7 days notice

in writing to the licensee where the Authority is satisfied that there has been a material

misstatement (of fact) by, or on behalf of the licensee, in making its application for the

licence.